S-3/A
1
AMEND NO. 1 TO FORM S-3
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1995
REGISTRATION NO. 33-58235
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GENERAL MOTORS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
STATE OF DELAWARE 38-0572515
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153-0075; (212) 418-6100
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091; (313) 556-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
J. MICHAEL LOSH
EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION
3044 WEST GRAND BOULEVARD
DETROIT, MICHIGAN 48202-3091
(313) 556-3549
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WARREN G. ANDERSEN ROBERT S. OSBORNE, P.C.
GENERAL MOTORS CORPORATION KIRKLAND & ELLIS
3031 WEST GRAND BOULEVARD 200 EAST RANDOLPH DRIVE
DETROIT, MICHIGAN 48202-3091 CHICAGO, ILLINOIS 60601-6636
FRANCIS J. MORISON PETER ALLAN ATKINS
DAVIS POLK & WARDWELL SKADDEN, ARPS, SLATE, MEAGHER & FLOM
450 LEXINGTON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10017
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8 (A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 29, 1995
15,000,000 SHARES
GENERAL MOTORS CORPORATION
CLASS H COMMON STOCK
-----------
The shares offered hereby are 15,000,000 shares of Class H Common Stock,
$0.10 par value per share ("Class H Common Stock"), of General Motors
Corporation, a Delaware corporation ("General Motors" or "GM"). Class H Common
Stock is one of three classes of General Motors common stock. Under the General
Motors Restated Certificate of Incorporation, as amended, dividends on Class H
Common Stock may be declared and paid out of the assets of General Motors only
to the extent of the sum of (i) the paid in surplus of General Motors
attributable to the Class H Common Stock plus (ii) an allocated portion of the
earnings, determined as described herein, of General Motors' wholly-owned
subsidiary
HUGHES ELECTRONICS CORPORATION
(FORMERLY KNOWN AS GM HUGHES ELECTRONICS CORPORATION)
GENERAL MOTORS, NOT HUGHES ELECTRONICS CORPORATION, IS THE ISSUER OF CLASS H
COMMON STOCK. FOR A DESCRIPTION OF DIVIDENDS, VOTING RIGHTS, LIQUIDATION RIGHTS
AND RECAPITALIZATION PROVISIONS, SEE "CLASS H COMMON STOCK" AND "APPENDIX A--
COMMON STOCK."
All of the 15,000,000 shares of Class H Common Stock offered hereby are being
sold by the Howard Hughes Medical Institute ("HHMI" or the "Selling
Stockholder"). HHMI has agreed to pay to General Motors the net proceeds of
this offering (after reduction for expenses, including underwriting discounts
and commissions) in excess of $37.50 per share. See "Selling Stockholder."
The last reported price of the Class H Common Stock, which is listed under
the symbol "GMH", on the New York Stock Exchange on March 28, 1995 was $40.00
per share. See "Class H Common Stock."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER(2)(3)
-------------- ------------ -------------------
Per Share....................... $ $ $
Total........................... $ $ $
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(1) General Motors and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Selling Stockholder estimated at
$ .
(3) Pursuant to an agreement described herein, this offering will result in a
payment (after providing for the expenses of this offering) from HHMI to
General Motors of the net proceeds to HHMI in excess of $37.50 per share.
See "Selling Stockholder."
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The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about April , 1995.
-----------
Joint Lead Managers
GOLDMAN, SACHS & CO. SALOMON BROTHERS INC
COWEN & COMPANY MORGAN STANLEY & CO.
INCORPORATED
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The date of this Prospectus is April , 1995.
AVAILABLE INFORMATION
General Motors is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information (including
certain information relating to Hughes Electronics Corporation) with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by General Motors with the Commission
can be inspected, and copies may be obtained, at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, as well as the following Regional Offices of the Commission:
Seven World Trade Center, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports, proxy
statements and other information concerning General Motors can also be
inspected at the offices of the New York Stock Exchange, Inc., 11 Wall Street,
New York, New York 10005, where the Class H Common Stock, Class E Common Stock
and $1 2/3 Par Value Common Stock of General Motors are listed and at the
offices of the following other stock exchanges where the $1 2/3 Par Value
Common Stock is listed in the United States: the Chicago Stock Exchange, Inc.,
One Financial Place, 440 S. LaSalle Street, Chicago, Illinois 60605; the
Pacific Stock Exchange, Inc., 233 South Beaudry Avenue, Los Angeles, California
90012 and 301 Pine Street, San Francisco, California 94104; and the
Philadelphia Stock Exchange, Inc., 1900 Market Street, Philadelphia,
Pennsylvania 19103.
General Motors has filed with the Commission a Registration Statement on Form
S-3 (as amended, including exhibits, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
described herein. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by General Motors with the
Commission, are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994, as
amended on Forms 10-K/A dated March 17 and 24, 1995 (as amended, the "GM
1994 Form 10-K");
2. Current Reports on Form 8-K dated March 3 and 13, 1995; and
3. The description of the Class H Common Stock set forth in Article
Fourth of General Motors' Restated Certificate of Incorporation, as amended
to May 26, 1994 (the "General Motors Certificate of Incorporation"), filed
as Exhibit 3(i) to the Current Report on Form 8-K dated May 26, 1994.
All documents filed by General Motors with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the shares offered
hereby shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
GENERAL MOTORS WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR
ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE
BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS NOT SPECIFICALLY DESCRIBED ABOVE. REQUESTS SHOULD BE
DIRECTED TO GENERAL MOTORS CORPORATION, ROOM 11-243, GENERAL MOTORS BUILDING,
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091 (TELEPHONE NUMBER (313)
556-2044).
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS H COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere or incorporated by reference in this
Prospectus. The share numbers in this Prospectus reflect all stock dividends
and subdivisions or combinations of General Motors capital stock prior to the
date hereof.
INTRODUCTION
This Prospectus relates to the offering by HHMI of 15,000,000 shares of Class
H Common Stock that is being made pursuant to an agreement between General
Motors and HHMI. Pursuant to such agreement, HHMI has agreed to pay to General
Motors the net proceeds of this offering (after reduction for expenses) in
excess of $37.50 per share. HHMI acquired its shares of Class H Common Stock in
1985 in connection with GM's acquisition from HHMI of Hughes Aircraft Company
("HAC"). See "Selling Stockholder."
Class H Common Stock is one of three classes of General Motors common stock.
Dividends on Class H Common Stock may be declared and paid out of the assets of
General Motors only to the extent of the sum of (i) the paid in surplus of
General Motors attributable to the Class H Common Stock plus (ii) an allocated
portion of the earnings, determined as described below, of General Motors'
wholly-owned subsidiary, Hughes Electronics Corporation (together with its
subsidiaries, "Hughes"). Holders of Class H Common Stock have no direct rights
in the equity or assets of Hughes, but rather have rights in the equity and
assets of General Motors (which includes 100% of the stock of Hughes). See
"Class H Common Stock--Considerations Relating to Multi-Class Common Stock
Capital Structure." Hughes was organized in 1985 in connection with GM's
acquisition of HAC from HHMI. See "Selling Stockholder."
GENERAL MOTORS
The major portion of General Motors' operations is derived from the
automotive products industry, consisting of the design, manufacture, assembly
and sale of automobiles, trucks and related parts and accessories. Primarily
through its wholly-owned subsidiaries, Hughes, General Motors Acceptance
Corporation ("GMAC") and Electronic Data Systems Corporation ("EDS"), General
Motors also manufactures products and provides services in other industry
segments. See "General Motors and Hughes--General Motors."
HUGHES
Hughes (formerly known as GM Hughes Electronics Corporation), a wholly-owned
subsidiary of General Motors, develops, manufactures and markets automotive
electronics components, aerospace and defense electronics products and systems,
and satellites and satellite-based communications systems, and provides related
services. Based on the most recently available Fortune 500 survey, Hughes on an
independent basis would have ranked among the 40 largest industrial
corporations in the United States. Hughes is one of the world's leading
suppliers of automotive electronics, a leading supplier of aerospace and
defense electronics systems, and a world leader in the manufacture and private
ownership and operation of communications satellites. Hughes provides a broad
range of satellite-related services and is a leader in the U.S. direct
broadcast satellite market with its programming distribution service known as
DIRECTV(R), which was introduced in 1994 and is the first high-powered, all
digital direct-to-home television distribution service in North America.
Hughes currently conducts its operations in three primary business segments:
Automotive Electronics; Aerospace and Defense Systems; and Telecommunications
and Space. In 1994, these segments represented, respectively, 37%, 43% and 18%
of Hughes' revenues and 49%, 41%
3
and 17% of Hughes' operating profit (excluding purchase accounting adjustments
related to GM's acquisition of HAC) and operations reported as Corporate and
Other represented approximately 2% of revenues and reported an operating loss
of $99.0 million. See "Corporate and Other."
Automotive Electronics
Through its wholly-owned subsidiary, Delco Electronics Corporation (together
with its subsidiaries, "Delco Electronics"), Hughes supplies the substantial
majority of the requirements for automotive electronics of General Motors'
North American Operations unit ("GM NAO") and an increasing amount of such
products for other customers. Products supplied by Hughes include engine
management controllers, air bag control modules and sensors, anti-lock brake
controllers, audio systems, instrument panel clusters and air controls. Hughes'
strategy in its Automotive Electronics segment is to maintain its position as a
principal supplier to GM NAO while continuing to expand sales to international
and other customers. Hughes' sales of automotive electronics are heavily
dependent on General Motors' production of vehicles in North America, the level
of Hughes-supplied electronic content per vehicle and the price of such
electronics. Since 1992, pursuant to its global sourcing initiative, GM NAO has
aggressively pursued price reductions from its suppliers and has provided
suppliers worldwide with the opportunity to bid for business customarily
sourced with Hughes. Hughes believes that it has been and will continue to be
able to compete effectively for GM NAO business because of the quality of its
products, its on-going cost reduction efforts and its product and technological
innovations. In 1993 and 1994, Hughes won approximately 93% of all globally
sourced, competitive bids for GM NAO automotive electronics business for which
Hughes competed (based on the dollar value of all bids submitted by Hughes).
Hughes expects that the number and sophistication of electronic functions in
vehicles will continue to increase, but that its prices to GM NAO will continue
to decrease as a result of GM NAO's global sourcing initiative and increasing
electronic sophistication at lower prices. As a result, Hughes expects that its
revenues per GM North American vehicle will remain constant or decrease after
1995, unless Hughes is able to achieve its goal of mitigating the effect of
continuing price reductions for current products by developing, producing and
expanding sales of enhanced products. Moreover, Hughes believes that it will be
able to mitigate the effect of GM NAO price reductions on operating profit
through its demonstrated ability to reduce costs. Hughes also anticipates
increased sales to customers other than GM NAO. See "Automotive Electronics."
Aerospace and Defense Systems
Hughes develops and manufactures a wide variety of electronics-based
aerospace and defense products and systems for the U.S. and other governments.
Hughes has positioned itself as a leading developer and producer of a variety
of tactical programs and as a subcontractor for certain types of subsystems for
strategic purposes rather than seeking to become a prime contractor for major
strategic weapons platforms such as tanks and aircraft. This permits Hughes to
participate in major segments of the defense market while reducing the impact
of specific program cancellations. Hughes is a leading supplier of defense
electronics products and services to the U.S. government, participating in
approximately half of the current U.S. tactical missile programs, and Hughes'
airborne radar units are deployed on four of the five U.S. military front-line
fighter aircraft. Hughes' business strategy is to strengthen its leadership
position in aerospace and defense electronics systems and services through
continued emphasis on technological advances, operational efficiencies, cost
reduction and competitiveness. Due to its technological capabilities and the
volume of its products and systems in operation around the world, Hughes
believes it can capitalize on the opportunities presented by the continuing
trend toward upgrading and retrofitting electronic systems as a cost effective
alternative to developing new strategic weapons platforms. Hughes also intends
to continue its strategy of reducing its vulnerability to reductions in U.S.
defense spending by diversifying its customer base and product
4
line, with emphasis on international markets and non-defense government
agencies. In support of these strategies, Hughes intends, where appropriate, to
enter into strategic alliances and partnership arrangements and to make
strategic acquisitions and divestitures. Hughes also believes that its
reorganization of its Aerospace and Defense Systems segment effective for 1995
will further enhance its ability to compete in a more cost efficient manner.
See "Aerospace and Defense Systems."
Telecommunications and Space
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of communications satellites and is the world's leading supplier
of satellite-based private business networks. Hughes also provides a broad
range of satellite-related services and is a leader in the U.S. direct
broadcast satellite market with its programming distribution service known as
DIRECTV, which was introduced in 1994 and is the first high-powered, all
digital direct-to-home television distribution service in North America. Hughes
seeks to capture more of the value-added benefits of the satellite-based
services market by capitalizing on its technological capabilities, the size and
desirable orbital locations of its satellite fleet and its management expertise
in satellite operations. Hughes' strategy also includes building on its
technology and experience to develop new applications for its satellite-based
services for governments, businesses and consumers and expanding international
sales. Hughes believes significant opportunities exist for it in mobile
wireless communications systems and, in areas with deficient communications
infrastructures (such as developing nations), fixed wireless telecommunications
networks for local and international telecommunications, and direct-to-home
satellite-based programming distribution services. Hughes' strategy also
includes developing new satellite-based technologies for opportunities such as
satellite-based data communications for personal computers and new systems for
telephone, video and data communications. In addition, Hughes seeks to maintain
its strong position in satellite manufacturing and to continue to increase the
profitability of its manufacturing operations through more efficient production
processes. See "Telecommunications and Space."
CLASS H COMMON STOCK
Class H Common Stock is one of three classes of General Motors common stock.
See "Appendix A--Common Stock." Holders of Class H Common Stock have no direct
rights in the equity or assets of Hughes, but rather have rights in the equity
and assets of General Motors (which includes 100% of the stock of Hughes).
Class H Common Stock is designed to provide holders with financial returns
based on the performance of Hughes. The intent of this design objective is
achieved through (i) allocations under the General Motors Certificate of
Incorporation of the earnings of Hughes between amounts available for the
payment of dividends on Class H Common Stock and amounts available for the
payment of dividends on General Motors' $1 2/3 Par Value Common Stock and (ii)
the announced current dividend practices and policies of the General Motors
Board of Directors, all as more fully described herein. The General Motors
Board of Directors is free to change dividend practices and policies with
respect to Class H Common Stock, or any other class of General Motors common
stock, at any time. See "Class H Common Stock--Dividend Policy."
Under the General Motors Certificate of Incorporation, dividends on Class H
Common Stock may be declared by the General Motors Board of Directors and paid
out of the assets of General Motors only to the extent of the sum of (i) the
paid in surplus of General Motors attributable to the Class H Common Stock plus
(ii) an allocated portion of the earnings, determined as described herein, of
Hughes. The amortization of intangible assets arising from the purchase
accounting adjustments related to GM's acquisition of HAC is charged against
earnings attributable to $1 2/3 Par Value Common Stock and not against earnings
attributable to Class H Common Stock. The portion of Hughes' earnings that is
included in the amount available for the payment of dividends on Class H Common
Stock (which
5
amount is also used to calculate earnings per share of Class H Common Stock) is
determined by a fraction, the numerator of which is a number equal to the
weighted average number of shares of Class H Common Stock outstanding and the
denominator of which was 399.9 million for the fourth quarter of 1994;
provided, that such fraction shall never be greater than one. Application of
this fraction, utilizing shares outstanding as of February 28, 1995 only, would
have resulted in an allocation of Hughes earnings (excluding purchase
accounting adjustments) to Class H Common Stock for dividend purposes of 24%.
This amount is referred to in the General Motors Certificate of Incorporation
as the "Available Separate Consolidated Net Income" of Hughes. See also Note 7
in the Hughes Consolidated Financial Statements in Appendix B. The sale of the
shares offered hereby by HHMI will not have any effect on this fraction.
For purposes of determining the approximate earnings per share attributable
to Class H Common Stock for financial reporting purposes, an investor may
divide the quarterly Hughes earnings allocated to Class H Common Stock (the
"Available Separate Consolidated Net Income of Hughes") by the weighted average
number of shares of Class H Common Stock outstanding during such quarter, which
is the numerator of the fraction described above. The same mathematical result
may be obtained by dividing the quarterly Hughes earnings used for computation
of Available Separate Consolidated Net Income (i.e., net income excluding
purchase accounting adjustments) by the denominator of the fraction described
above, which was 399.9 million for the fourth quarter of 1994. The denominator
is sometimes referred to herein as the "Class H Dividend Base."
The current dividend policy of the General Motors Board of Directors is to
pay quarterly dividends on Class H Common Stock at an annual rate equal to
approximately 35% of the Available Separate Consolidated Net Income of Hughes
for the prior year. The General Motors Board of Directors declared a dividend
on the Class H Common Stock of $0.20 per share in each quarter of 1994 and
$0.18 per share in each quarter of 1993 and 1992, which in each case was based
on an annual rate higher than 35% of the Available Separate Consolidated Net
Income of Hughes for the preceding year (excluding the effect of a $749.4
million after-tax special Hughes restructuring charge recorded in 1992). In
February 1995, the Board of Directors of General Motors increased the quarterly
dividend on Class H Common Stock from $0.20 per share to $0.23 per share (which
is based on an annual rate of approximately 35% of the Available Separate
Consolidated Net Income of Hughes for 1994). Under Delaware law and the General
Motors Certificate of Incorporation, the General Motors Board of Directors is
not required to declare dividends on any class of General Motors common stock,
including Class H Common Stock. The General Motors Board of Directors reserves
the right to reconsider from time to time its practices and policies regarding
dividends on all classes of GM common stock and to increase or decrease the
dividends paid on GM common stocks on the basis of General Motors' consolidated
financial position, including liquidity, and other factors, including, with
regard to Class H Common Stock, the earnings and consolidated financial
position of Hughes. Under the current dividend practices and policies of the
General Motors Board of Directors, dividends on Class H Common Stock are not
materially affected by developments involving the performance (operations,
liquidity or financial condition) of General Motors (excluding Hughes). See
"Class H Common Stock--Dividend Policy" and "--Considerations Relating to
Multi-Class Common Stock Capital Structure" and "Appendix A--Common Stock--
Dividends."
Holders of Class H Common Stock may cast one-half of a vote per share on all
matters submitted to General Motors stockholders for a vote, while holders of
$1 2/3 Par Value Common Stock may cast one vote per share and holders of
General Motors' Class E Common Stock may cast one-eighth of a vote per share.
Holders of all three classes of common stock vote together on all matters
except that separate class votes are required for certain amendments to the
General Motors Certificate of Incorporation. See "Class H Common Stock--Voting
Rights."
6
In the event of the liquidation, dissolution or winding up of the business of
General Motors, whether voluntary or involuntary, the General Motors
Certificate of Incorporation provides that, after the holders of General Motors
Preferred Stock (if any) and Preference Stock receive the full preferential
amounts to which they are entitled, holders of Class H Common Stock and the
other two classes of General Motors common stock will receive the assets
remaining for distribution to the General Motors stockholders on a per share
basis in proportion to the respective per share liquidation units of such
classes and will have no direct claim against any particular assets of General
Motors or any of its subsidiaries. Subject to adjustment, each share of Class H
Common Stock, $1 2/3 Par Value Common Stock and Class E Common Stock would
currently be entitled to liquidation units of approximately one-half (0.50),
one (1.0) and one-eighth (0.125), respectively. Holders of Class H Common Stock
have no direct rights in the equity or assets of Hughes, but rather have rights
in the equity and assets of General Motors (which includes 100% of the stock of
Hughes). See "Class H Common Stock--Liquidation Rights."
All outstanding shares of Class H Common Stock may be recapitalized as shares
of $1 2/3 Par Value Common Stock (i) at any time after December 31, 1995, in
the sole discretion of the General Motors Board of Directors, subject to
certain conditions, or (ii) automatically, if at any time General Motors
disposes of substantially all of the business of HAC (or its successors) or
Delco Electronics. In the event of such a recapitalization, each holder of
Class H Common Stock would receive shares of $1 2/3 Par Value Common Stock
having a market value, as of the valuation date provided for in the General
Motors Certificate of Incorporation, equal to 120% of the market value of such
holder's Class H Common Stock on such valuation date. See "Class H Common
Stock--Recapitalization."
THE OFFERING
Class H Common Stock offered hereby...................... 15,000,000 shares
Class H Common Stock outstanding before and after the
offering (a)............................................ 94,528,112 shares (b)
Class H Dividend Base (c)................................ 399.9 million
NYSE Symbol.............................................. GMH
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(a) Used in calculating the weighted average number of shares of Class H Common
Stock outstanding, which is the numerator of the fraction used to allocate
a portion of Hughes' earnings to the Class H Common Stock for dividend
purposes.
(b) Based on the number of shares outstanding on February 28, 1995. The
consummation of this offering will not change the number of shares of Class
H Common Stock outstanding.
(c) The denominator of the fraction used to allocate a portion of Hughes'
earnings to the Class H Common Stock for dividend purposes. Neither the
Class H Dividend Base nor the numerator of such fraction will be affected
by the sale by HHMI of the shares offered hereby.
7
SUMMARY FINANCIAL DATA
GENERAL MOTORS
The following summary General Motors financial data have been derived from
General Motors' consolidated financial statements and General Motors' financial
data presenting GMAC on an equity basis set forth in, and should be read in
conjunction with, General Motors' consolidated financial statements (including
the notes thereto) and Management's Discussion and Analysis in the GM 1994 Form
10-K, which is incorporated herein by reference. The GM consolidated financial
data for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 are
derived from audited financial statements. The GM financial data presenting
GMAC on an equity basis are unaudited.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994(A) 1993 1992(B) 1991(C) 1990
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN MILLIONS)
CONSOLIDATED GM
OPERATIONS
OPERATING RESULTS
Total net sales and
revenues.............. $154,951.2 $138,219.5 $132,242.2 $123,108.8 $124,705.1
---------- ---------- ---------- ---------- ----------
Costs and expenses..... 146,597.9 134,694.2 134,338.3 126,180.3 123,608.2
Special provision for
scheduled plant
closings and other
restructurings........ -- 950.0 1,237.0 2,820.8 3,314.0
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 146,597.9 135,644.2 135,575.3 129,001.1 126,922.2
---------- ---------- ---------- ---------- ----------
Income (Loss) before
cumulative effect of
accounting changes.... 5,658.7 2,465.8 (2,620.6) (4,992.0) (1,985.7)
---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8) $ (1,985.7)
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 16,075.6 $ 17,962.7 $ 15,107.7 $ 10,192.4 $ 7,821.4
Total assets........... 198,598.7 188,200.9 190,196.0 184,074.6 180,236.5
Notes and loans
payable............... 73,730.2 70,441.2 82,592.3 94,022.1 95,633.5
Stockholders' equity... 12,823.8 5,597.5 6,225.6 27,327.6 30,047.4
GM OPERATIONS WITH GMAC
ON AN EQUITY BASIS
(UNAUDITED)
OPERATING RESULTS
Total net sales and
revenues.............. $141,576.0 $125,252.7 $118,571.6 $109,156.9 $110,797.3
---------- ---------- ---------- ---------- ----------
Costs and expenses. 134,815.3 122,812.1 121,420.0 112,719.3 110,893.3
Special provision for
scheduled plant
closings and other
restructurings........ -- 950.0 1,237.0 2,820.8 3,314.0
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 134,815.3 123,762.1 122,657.0 115,540.1 114,207.3
---------- ---------- ---------- ---------- ----------
Income (Loss) before
cumulative effect of
accounting changes.... 5,651.3 2,465.8 (2,903.2) (4,660.5) (1,985.7)
---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8) $ (1,985.7)
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 10,976.4 $ 10,485.0 $ 7,960.8 $ 4,419.4 $ 4,606.5
Total assets........... 126,334.9 120,980.5 121,356.2 104,797.5 102,878.8
Long-term debt and
capitalized leases.... 6,218.7 6,383.6 7,055.4 6,699.1 4,923.8
Stockholders' equity... 12,823.8 5,597.5 6,225.6 27,327.6 30,047.4
Cumulative Amount
Available for Payment
of Dividends(d)
Class H Common Stock. $ 2,169.3 $ 1,886.7 $ 1,582.9 $ 1,218.5 $ 1,106.6
Class E Common Stock. 3,752.1 3,243.8 2,546.4 1,753.0 1,449.0
$1 2/3 Par Value
Common Stock........ 9,013.8 4,870.0 3,487.7 23,264.1 26,801.2
---------- ---------- ---------- ---------- ----------
Total.............. $ 14,935.2 $ 10,000.5 $ 7,617.0 $ 26,235.6 $ 29,356.8
========== ========== ========== ========== ==========
8
(a) Effective January 1, 1994, GM adopted Statement of Financial Accounting
Standards ("SFAS") No. 112. The effect of this change on 1994 results was
an unfavorable cumulative effect on GMAC earnings of $7.4 million, an
unfavorable consolidated effect on GM operations with GMAC on an equity
basis of $750.7 million and an unfavorable cumulative effect on
consolidated GM operations of $758.1 million.
(b) Effective January 1, 1992, GM adopted SFAS No. 106. The effect of this
change on 1992 earnings was an unfavorable cumulative effect on GMAC
earnings of $282.6 million, an unfavorable cumulative effect on GM
operations with GMAC on an equity basis of $20,555.1 million and an
unfavorable cumulative effect on consolidated GM operations of $20,837.7
million. Additionally, effective January 1, 1992, Hughes changed its
revenue recognition policy for certain commercial businesses. The effect of
this change on 1992 results was an unfavorable adjustment of $40.0 million.
(c) Effective January 1, 1991, accounting procedures were changed to include in
inventory general purpose spare parts previously charged directly to
expense. The effect of this change on 1991 earnings was a favorable
adjustment of $306.5 million. GM adopted SFAS No. 109, effective January 1,
1991. The effect of this change on 1991 results was a favorable cumulative
effect on GMAC earnings of $331.5 million, an unfavorable cumulative effect
on GM operations with GMAC on an equity basis of $98.8 million and a
favorable cumulative effect on consolidated GM operations of $232.7
million.
(d) Amount of funds legally available as of such date for the payment of
dividends on each class of GM common stock under the General Motors
Certificate of Incorporation. See "Appendix A--Common Stock--Dividends."
HUGHES
Audited consolidated financial statements for Hughes (including the notes
thereto) may be found in Appendix B and in the GM 1994 Form 10-K, which is
incorporated herein by reference. Certain information with respect to Hughes is
also set forth in the consolidated financial statements of GM (including the
notes thereto), which are included in the GM 1994 Form 10-K and incorporated
herein by reference.
The following summary Hughes consolidated financial data have been derived
from, and should be read in conjunction with, Appendix B and the GM and Hughes
consolidated financial statements (including the notes thereto) set forth in
the GM 1994 Form 10-K and incorporated herein by reference. These data should
also be read in conjunction with "Financial Review of Hughes and Its Business
Segments" below.
As specified in the General Motors Certificate of Incorporation, the earnings
upon which dividends for the Class H Common Stock are based exclude the effects
of the amortization of intangible assets arising from purchase accounting
adjustments related to the acquisition of HAC by GM. In order to assist the
reader in analyzing the Class H Common Stock, the Hughes unaudited summary
consolidated pro forma financial data set forth below do not give effect to
such purchase accounting adjustments. Included in such summary pro forma
financial data are certain financial ratios that provide measures of financial
returns excluding the impact of such purchase accounting adjustments. Such pro
forma data are not presented as a measure of GM's total return on its
investment in Hughes. Holders of Class H Common Stock have no direct rights in
the equity or assets of Hughes, but rather have rights in the equity and assets
of General Motors (which includes 100% of the stock of Hughes). Following the
Hughes unaudited summary consolidated pro forma financial data are Hughes
summary consolidated financial data that include the purchase accounting
adjustments related to GM's acquisition of HAC.
9
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA FINANCIAL DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- -------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers.......................... $ 9,108.7 $9,062.8 $ 8,267.6
General Motors and Affiliates.............. 4,953.6 4,387.4 3,901.4
Other Income--net............................ 37.1 67.3 128.1
--------- -------- ---------
Total Revenues........................... 14,099.4 13,517.5 12,297.1
Restructuring Charge......................... -- -- 1,237.0
Operating Profit (Loss) (a).................. 1,630.4 1,460.1 (194.2)
Interest Expense............................. 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes..... $ 1,652.4 $1,494.2 $ (126.7)
Effective Income Tax Rate.................... 34.7% 38.3% 37.0%
Earnings (Loss) Used for Computation of
Available Separate
Consolidated Net Income (Loss)*............. $ 1,049.2 $ 921.6 $ (921.6)
========= ======== =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............... 92.1 88.6 75.3
Class H Dividend Base (Denominator).......... 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss) *.................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis *......... 2.62 2.30 (2.29)
Dividends Per Share of Class H Common Stock.. 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............... $ 1,501.8 $1,008.7 $ 702.7
Total Assets (b)............................. 11,845.2 10,988.0 10,956.3
Long-Term Debt and Capitalized Leases........ 353.5 416.8 711.0
Stockholder's Equity (b) (c)................. 4,970.5 4,199.0 3,562.1
Depreciation and Amortization (d)............ 470.2 503.5 487.1
Capital Expenditures (e)..................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (f)........... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)............. 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*................ 7.5 6.9 (7.6)
Return on Equity (b) (i)*.................... 22.9 23.7 (21.9)
Pre-Tax Return on Total Assets (b) (j)....... 14.5 13.6 (1.2)
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Holders of Class H Common Stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993 and
1992. See Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994 and $872.1 million, or $2.18 per
share, in 1992.
10
HUGHES SUMMARY CONSOLIDATED FINANCIAL DATA
(INCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers.......................... $9,108.7 $9,062.8 $ 8,267.6
General Motors and Affiliates.............. 4,953.6 4,387.4 3,901.4
Other Income--net............................ 37.1 67.3 128.1
-------- -------- ---------
Total Revenues........................... 14,099.4 13,517.5 12,297.1
Restructuring Charge......................... -- -- 1,237.0
Operating Profit (Loss) (a).................. 1,506.6 1,336.3 (318.0)
Interest Expense............................. 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes..... $1,528.6 $1,370.4 $ (250.5)
Effective Income Tax Rate.................... 37.5% 41.8% 41.6%
Net Income (Loss)*........................... $ 925.4 $ 797.8 $(1,045.4)
Adjustments to exclude the effect of GM
purchase accounting adjustments related to
Hughes...................................... 123.8 123.8 123.8
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)*..................................... $1,049.2 $ 921.6 $ (921.6)
======== ======== =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............... 92.1 88.6 75.3
Class H Dividend Base (Denominator).......... 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)*..................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis*.......... 2.62 2.30 (2.29)
Dividends Per Share of Class H Common Stock.. 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............... $1,501.8 $1,008.7 $ 702.7
Total Assets (b)............................. 14,850.5 14,117.1 14,209.2
Long-Term Debt and Capitalized Leases........ 353.5 416.8 711.0
Stockholder's Equity (b) (c)................. 7,975.8 7,328.1 6,815.0
Depreciation and Amortization................ 594.0 627.3 610.9
Capital Expenditures (d)..................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (e)........... 10.7% 9.9% (2.6)%
Pre-Tax Profit (Loss) Margin (f)............. 10.9 10.2 (2.1)
Net Profit (Loss) Margin (g)*................ 6.6 5.9 (8.6)
Return on Equity (b) (h)*.................... 12.1 11.3 (13.9)
Pre-Tax Return on Total Assets (b) (i)....... 10.6 9.7 (1.8)
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Holders of Class H Common Stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(e) Operating Profit (Loss) as a percentage of Net Sales.
(f) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(g) Net Income (Loss) as a percentage of Net Sales.
(h) Net Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(i) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994, and $872.1 million, or $2.18 per
share, in 1992.
11
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
Hughes has historically reported its operations in four business segments:
Automotive Electronics, Defense Electronics, Telecommunications and Space, and
Commercial Technologies. See Note 16 to the Hughes Consolidated Financial
Statements included in Appendix B and the GM 1994 Form 10-K. In connection with
organizational changes, commencing January 1, 1995, Hughes will report its
operations in three segments: Automotive Electronics, Aerospace and Defense
Systems and Telecommunications and Space. Hughes believes that the new segment
presentation better reflects its strategic direction and the manner in which
its businesses are now managed.
As part of the reorganization, the business units formerly included in the
Commercial Technologies segment are now included in one of the three remaining
segments or are reported as part of "Corporate and Other." The new Aerospace
and Defense Systems segment includes all major business units previously
included in the Defense Electronics segment as well as Hughes' air traffic
control business, National Aeronautics and Space Administration ("NASA")
business (including the Earth Observing System Data Information System
("EOSDIS") program) and industrial training and simulation business. The
composition of the Automotive Electronics segment and the Telecommunications
and Space segment was not changed significantly. Other business units formerly
reported as part of the Commercial Technologies segment will now primarily be
reported as part of Corporate and Other. The most significant of these are
Hughes-Avicom International, Inc. ("Avicom"), which supplies cabin management,
interactive passenger communications and entertainment systems and related
services for the commercial airline market and certain portions of the former
Hughes Industrial Electronics Company ("HIEC"). Corporate and Other also
includes other minor business activities and, through 1993, Hughes Rediffusion
Simulation Limited ("Rediffusion"), a supplier of commercial flight simulators
and related systems and services, which Hughes sold in 1993. The revenues of
the businesses included in Corporate and Other are not, in the aggregate,
material to Hughes. The operating loss of $99 million attributed to Corporate
and Other in 1994 includes an $83 million operating loss reported by Avicom.
See "Financial Review of Hughes and Its Business Segments."
Unaudited summary consolidated pro forma financial data for the four business
segments as reported through the end of 1994 are shown on the next page.
Immediately following such data are unaudited summary consolidated pro forma
financial data for the three business segments as reported commencing in 1995.
All such data should be read in conjunction with Appendix B and GM's and
Hughes' audited consolidated financial statements (including the notes
thereto), which are set forth in the GM 1994 Form 10-K and incorporated herein
by reference. These data exclude purchase accounting adjustments related to
GM's acquisition of HAC. These data should also be read in conjunction with
"Financial Review of Hughes and Its Business Segments" below, which is
presented on the basis of the three business segments effective for 1995 and
which includes a discussion of the operations reported as part of Corporate and
Other. Except as presented below under the caption "Four Business Segment Data"
and in the Hughes Consolidated Financial Statements included in Appendix B, all
financial data in this Prospectus are presented to reflect the new three
business segment presentation.
12
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
FOUR BUSINESS SEGMENT DATA
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues...................................... $5,267.5 $4,491.6 $3,985.8
Revenues as a percentage of Hughes Revenues... 37.4% 33.2% 32.4%
Net Sales..................................... $5,216.5 $4,488.9 $3,977.2
Operating Profit (a).......................... 793.6 626.1 462.4
Operating Profit Margin (b)................... 15.2% 13.9% 11.6%
Depreciation and Amortization................. $ 143.4 $ 153.2 $ 124.1
Capital Expenditures.......................... 171.9 149.2 266.1
DEFENSE ELECTRONICS
Revenues...................................... $5.590.7 $6,112.1 $5,547.0
Revenues as a percentage of Hughes Revenues... 39.6% 45.2% 45.1%
Net Sales..................................... $5,569.1 $6,085.0 $5,498.0
Restructuring Charge.......................... -- -- 911.8
Operating Profit (Loss) (a)................... 686.4 640.7 (493.9)
Operating Profit (Loss) Margin (b)............ 12.3% 10.5% (9.0)%
Depreciation and Amortization (c)............. $ 158.1 $ 195.4 $ 204.6
Capital Expenditures.......................... 152.5 132.9 99.4
TELECOMMUNICATIONS AND SPACE
Revenues...................................... $2,528.7 $2,178.0 $1,927.9
Revenues as a percentage of Hughes Revenues... 17.9% 16.1% 15.7%
Net Sales..................................... $2,565.1 $2,075.0 $1,918.4
Restructuring Charge.......................... -- -- 195.3
Operating Profit (a).......................... 277.3 206.7 44.2
Operating Profit Margin (b)................... 10.8% 10.0% 2.3%
Depreciation and Amortization (c)............. $ 133.7 $ 108.0 $ 118.0
Capital Expenditures (d)...................... 395.0 264.9 174.4
COMMERCIAL TECHNOLOGIES
Revenues...................................... $ 712.5 $ 735.8 $ 836.4
Revenues as a percent of Hughes Revenues...... 5.1% 5.5% 6.8%
Net Sales..................................... $ 711.6 $ 801.3 $ 775.4
Restructuring Charge.......................... -- -- 129.9
Operating Profit (Loss) (a)................... (114.2) 9.9 (184.8)
Operating Profit (Loss) Margin (b)............ (16.0)% 1.2% (23.8)%
Depreciation and Amortization (c)............. $ 35.0 $ 46.9 $ 40.4
Capital Expenditures.......................... 26.9 33.0 18.6
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $102.8 million, $102.7 million and
$102.7 million, respectively, for the Defense Electronics segment; $10.7
million, $10.8 million and $10.8 million, respectively, for the
Telecommunications and Space segment; and $10.3 million, $10.3 million and
$10.3 million, respectively, for the Commercial Technologies segment. See
Note 7 to Hughes Consolidated Financial Statements in Appendix B.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
13
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
THREE BUSINESS SEGMENT DATA
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues....................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues.... 37.0% 32.9% 32.0%
Net Sales...................................... $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)........................... 794.8 624.3 463.2
Operating Profit Margin (b).................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................. $ 142.2 $ 146.8 $ 121.4
Capital Expenditures........................... 166.4 148.2 263.9
AEROSPACE AND DEFENSE SYSTEMS
Revenues....................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues.... 42.7% 47.9% 47.4%
Net Sales...................................... $6,007.3 $6,442.9 $5,781.8
Restructuring Charge........................... -- -- 911.8
Operating Profit (Loss) (a).................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............. 11.0% 10.3% (8.1)%
Depreciation and Amortization (c).............. $ 158.5 $ 201.2 $ 219.1
Capital Expenditures........................... 159.5 131.4 100.3
TELECOMMUNICATIONS AND SPACE
Revenues....................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues.... 18.4% 16.6% 16.1%
Net Sales...................................... $2,633.8 $2,135.8 $1,972.9
Restructuring Charge........................... -- -- 195.3
Operating Profit (a)........................... 271.0 209.6 50.7
Operating Profit Margin (b).................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c).............. $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)....................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $100.9 million for the Aerospace
and Defense Systems segment and $21.0 million for the Telecommunications
and Space segment in 1994, 1993 and 1992. See Note 7 to Hughes Consolidated
Financial Statements in Appendix B.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
14
GENERAL MOTORS AND HUGHES
GENERAL MOTORS
While the major portion of General Motors' operations is derived from the
automotive products industry segment, General Motors also has financing and
insurance operations and produces products and provides services in other
industry segments. The automotive products segment consists of the design,
manufacture, assembly, and sale of automobiles, trucks, and related parts and
accessories. General Motors financing and insurance operations assist in the
merchandising of General Motors' products as well as other products. GMAC and
its subsidiaries offer financial services and certain types of insurance to
dealers and customers. In addition, GMAC and its subsidiaries are engaged in
mortgage banking and investment services. General Motors' other product
segments consist of military vehicles, radar and weapon control systems, guided
missile systems and defense and commercial satellites; the design, installation
and operation of business information and telecommunications systems; as well
as the design, development, and manufacture of locomotives. For additional
information on General Motors, see the GM 1994 Form 10-K which is incorporated
herein by reference, and the other documents incorporated herein by reference.
General Motors' principal executive offices are located at 3044 West Grand
Boulevard, Detroit, Michigan 48202-3091 (Telephone Number (313) 556-5000), and
767 Fifth Avenue, New York, New York 10153-0075 (Telephone Number (212) 418-
6100).
HUGHES ELECTRONICS CORPORATION
Hughes, a wholly-owned subsidiary of General Motors, develops, manufactures
and markets automotive electronics components, aerospace and defense
electronics products and systems, and satellites and satellite-based
communications systems, and provides related services. Based on the most
recently available Fortune 500 survey, Hughes on an independent basis would
have ranked among the 40 largest industrial corporations in the United States.
Hughes is one of the world's leading suppliers of automotive electronics, a
leading supplier of aerospace and defense electronics systems and a world
leader in the manufacture and private ownership and operation of communications
satellites. Hughes provides a broad range of satellite-related services and is
a leader in the U.S. direct broadcast satellite market with its programming
distribution service known as DIRECTV, which was introduced in 1994 and is the
first high-powered, all digital direct-to-home television distribution service
in North America. Hughes was organized in 1985 in connection with GM's
acquisition of HAC from HHMI.
The principal executive offices of Hughes are located at 7200 Hughes Terrace,
Los Angeles, California 90045-0066 (Telephone Number (310) 568-7200).
RELATIONSHIP BETWEEN GENERAL MOTORS AND HUGHES
It is GM's policy that a standard of fair dealing govern the prices, terms
and conditions of commercial transactions between Hughes and General Motors.
The Capital Stock Committee of the General Motors Board of Directors is
responsible for reviewing under general principles of Delaware corporation law,
among other things, (i) the principal business and financial relationships and
transactions among General Motors, Hughes and EDS, (ii) the dividend policies
or practices of General Motors and (iii) such other matters as have the
potential to have differing effects on holders of the three classes of General
Motors common stock, all to the extent such Committee may deem appropriate. The
Capital Stock Committee is comprised entirely of independent directors of
General Motors. In addition, a majority of the General Motors Board of
Directors are independent directors. See "Class H Common Stock--Considerations
Relating to Multi-Class Common Stock Capital Structure."
15
Approximately 35% of Hughes' 1994 total revenues were attributable to sales
to General Motors and its affiliates. Hughes and General Motors periodically
provide research and technological services to each other pursuant to
contractual arrangements. See "Automotive Electronics."
General Motors' automotive operations in the United States and Canada,
including vehicle production and sales, are conducted through GM NAO. In 1994,
approximately 86% of Hughes' revenues in its Automotive Electronics business
segment were attributable to sales to GM NAO, with a portion of the remaining
14% attributable to sales to GM operations outside of North America and
affiliates of General Motors. In 1992, GM NAO announced its intention to begin
filling its procurement needs on a global basis. As part of this initiative,
suppliers worldwide have the opportunity to bid competitively for GM NAO
business customarily sourced with Hughes. GM's operations outside of North
America also source their procurement needs on a global basis. See "Automotive
Electronics--Sales to GM NAO" and "--International and Other Sales."
The Board of Directors of Hughes is comprised of three directors who are also
independent directors of General Motors (one of whom is also a member of the
Capital Stock Committee of the GM Board of Directors), three directors who are
executive officers of General Motors, and three directors who are executive
officers of Hughes. Those directors of Hughes who are also executive officers
of General Motors devote a substantial amount of their time to the business and
affairs of General Motors and its other subsidiaries or to the oversight
thereof. As the sole stockholder of Hughes, General Motors controls the Hughes
Board of Directors and, subject to Delaware law, is able to cause Hughes to pay
dividends and make advances to or otherwise enter into such transactions with
GM as GM deems desirable and appropriate. General Motors reserves the right to
cause Hughes to pay dividends to GM in such amounts as GM determines are
desirable under the then prevailing facts and circumstances. Such amounts may
be the same as, greater than, or less than the cash dividends paid by General
Motors on the Class H Common Stock. There is no fixed relationship, on a per
share or aggregate basis, between the cash dividends that may be paid by
General Motors to holders of the Class H Common Stock and the dividends or
other amounts that may be paid by Hughes to General Motors. However, it has
been the practice of the Board of Directors of Hughes to pay quarterly cash
dividends to General Motors in an aggregate amount equal to the quarterly
dividend per share paid by General Motors with respect to Class H Common Stock
multiplied by the denominator of the fraction used in determining the Available
Separate Consolidated Net Income of Hughes. See "Class H Common Stock--
Considerations Relating to Multi-Class Common Stock Capital Structure."
16
CLASS H COMMON STOCK
Class H Common Stock is one of three classes of General Motors common stock.
The other two classes of common stock are $1 2/3 Par Value Common Stock and
Class E Common Stock. A description of all classes and series of General Motors
capital stock, including Class H Common Stock, appears as Appendix A hereto,
and the discussions below are qualified by reference thereto.
PRICE RANGE AND DIVIDENDS
The table below shows the range of reported per share sale prices on the New
York Stock Exchange Composite Tape for the Class H Common Stock for the periods
indicated, and the dividends paid per share on the Class H Common Stock in such
periods. A recent closing sale price, as reported on the New York Stock
Exchange, is set forth on the cover page of this Prospectus.
CALENDAR YEAR HIGH LOW DIVIDENDS PAID
------------- ------ ------ --------------
1993
First Quarter.............................. $27.50 $22.88 $0.18
Second Quarter............................. 33.00 23.38 0.18
Third Quarter.............................. 38.00 30.50 0.18
Fourth Quarter............................. 42.38 34.50 0.18
1994
First Quarter.............................. $40.38 $32.63 $0.20
Second Quarter............................. 38.75 31.75 0.20
Third Quarter.............................. 38.00 34.63 0.20
Fourth Quarter............................. 37.75 31.00 0.20
1995
First Quarter (through March 28, 1995)..... $40.38 $34.00 $0.23
DIVIDEND POLICY
Subject to the rights of the holders of General Motors Preferred Stock (if
any) and General Motors Preference Stock, under the General Motors Certificate
of Incorporation, dividends on Class H Common Stock may be declared and paid
out of the assets of General Motors only to the extent of the sum of (i) the
paid in surplus of General Motors attributable to the Class H Common Stock plus
(ii) an allocated portion of the earnings, determined as described herein, of
Hughes. See "Appendix A--Common Stock--Dividends." The General Motors
Certificate of Incorporation allocates the earnings of Hughes between amounts
available for the payment of dividends on Class H Common Stock and amounts
available for the payment of dividends on $1 2/3 Par Value Common Stock. Under
the General Motors Certificate of Incorporation, the amortization of intangible
assets arising from the purchase accounting adjustments related to GM's
acquisition of HAC is charged against earnings attributable to $1 2/3 Par Value
Common Stock and not against earnings attributable to Class H Common Stock. The
Hughes Statement of Consolidated Operations set forth in Appendix B reflects
amortization of purchase accounting adjustments arising from GM's acquisition
of HAC in 1985 of $123.8 million in each of 1994, 1993 and 1992. Also, $3,005.3
million, $3,129.1 million and $3,252.9 million, respectively, of related
unamortized purchase accounting adjustments are included in the Hughes
Consolidated Balance Sheet as of December 31, 1994, 1993 and 1992 set forth in
Appendix B. The General Motors Certificate of Incorporation provides that, in
calculating the amount available for payment of dividends on Class H Common
Stock (which amount is also used to calculate earnings per share of Class H
Common Stock), amortization of the excess purchase price for GM's acquisition
of HAC will not be charged against the earnings of Hughes. For purposes of
calculating the amounts available for payment of dividends on Class H Common
Stock and on $1 2/3 Par Value Common Stock, amortization of such purchase
accounting adjustments is charged against the amounts available for the payment
of dividends on $1 2/3 Par Value Common Stock, not Class H Common Stock. To aid
holders of Class H Common Stock, this Prospectus also provides supplemental
data which enables readers to review the financial performance of Hughes
excluding amortization of GM purchase accounting adjustments related to the
acquisition of
17
HAC. See the Hughes Financial Information set forth in Appendix B. The
cumulative amounts legally available for the payment of dividends on Class H
Common Stock as of December 31, 1994, 1993, 1992, 1991 and 1990 are set forth
in the General Motors Summary Financial Data included in the Prospectus
Summary. See also Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
Dividend policy is one of the matters reviewed by the Capital Stock
Committee of the General Motors Board of Directors. See "Relationship Between
General Motors and Hughes" and "--Considerations Relating to Multi-Class
Common Stock Capital Structure." Under the current dividend policy as adopted
by the General Motors Board of Directors, the annual per share dividends on
the Class H Common Stock, when, as and if declared by the Board of Directors
in its sole discretion, will equal approximately 35% of the portion of Hughes'
net income for the previous year that is allocated to the amount available for
the payment of dividends on Class H Common Stock for dividend purposes (the
"Available Separate Consolidated Net Income of Hughes"). See "Prospectus
Summary--Class H Common Stock" and Note 7 to the Hughes Consolidated Financial
Statements in Appendix B. Under the current dividend practices and policies of
the General Motors Board of Directors, dividends on Class H Common Stock are
not materially affected by developments involving the performance (operations,
liquidity or financial condition) of General Motors (excluding Hughes). The
Board of Directors declared a dividend on the Class H Common Stock of $0.20
per share in each quarter of 1994 and $0.18 per share in each quarter of 1992
and 1993, which in each case was based on an annual rate higher than 35% of
the Available Separate Consolidated Net Income of Hughes for the preceding
year (excluding the effect of a $749.4 million after-tax special Hughes
restructuring charge recorded in 1992). In February 1995, the Board of
Directors of General Motors increased the quarterly dividend on Class H Common
Stock from $0.20 per share to $0.23 per share (which is based on an annual
rate of approximately 35% of the Available Separate Consolidated Net Income of
Hughes for 1994).
Under Delaware law and the General Motors Certificate of Incorporation, the
General Motors Board of Directors is not required to declare dividends on any
class of General Motors common stock. If and to the extent the General Motors
Board of Directors chooses to declare dividends on any or all of the classes
of its common stock, neither Delaware law nor the General Motors Certificate
of Incorporation requires that there be any proportionate or other fixed
relationship between the amount of dividends declared with respect to such
different classes of common stock. The General Motors Board of Directors
reserves the right to reconsider from time to time its practices and policies
regarding dividends on GM's common stocks and to increase or decrease the
dividends paid on GM's common stocks on the basis of General Motors'
consolidated financial position, including liquidity, and other factors,
including, with regard to Class H Common Stock, the earnings and consolidated
financial position of Hughes. See "Appendix A--Common Stock--Dividends."
Information concerning General Motors and its consolidated financial
performance, including Management's Discussion and Analysis, may be found in
the documents incorporated herein by reference, including the GM 1994 Form 10-
K. There is no fixed relationship, on a per share or aggregate basis, between
the cash dividends that may be paid by General Motors to holders of Class H
Common Stock and cash dividends or other amounts that may be paid by Hughes to
General Motors. However, it has been the practice of the Board of Directors of
Hughes to pay quarterly cash dividends to General Motors in an aggregate
amount equal to the quarterly dividend per share paid by General Motors on
Class H Common Stock multiplied by the denominator of the fraction used to
determine the Available Separate Consolidated Net Income of Hughes. See
"Relationship Between General Motors and Hughes."
VOTING RIGHTS
Under the General Motors Certificate of Incorporation, holders of Class H
Common Stock may cast one-half of a vote per share on all matters submitted to
General Motors stockholders for a vote, while
18
holders of $1 2/3 Par Value Common Stock may cast one vote per share and
holders of Class E Common Stock may cast one-eighth of a vote per share.
Holders of all three classes of common stock vote together on all matters,
except that separate class votes are required for certain amendments to the
General Motors Certificate of Incorporation. See "Appendix A--Common Stock--
Voting."
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the business of
General Motors, whether voluntary or involuntary, the General Motors
Certificate of Incorporation provides that, after the holders of General Motors
Preferred Stock, if any were outstanding, and Preference Stock receive the full
preferential amounts to which they are entitled, holders of the Class H Common
Stock, $1 2/3 Par Value Common Stock and Class E Common Stock will receive the
assets remaining for distribution to the General Motors stockholders on a per
share basis in proportion to the respective per share liquidation units of such
classes. Subject to adjustment as described below, each share of Class H Common
Stock, $1 2/3 Par Value Common Stock and Class E Common Stock would currently
be entitled to liquidation units of approximately one-half (0.50), one (1.0)
and one-eighth (0.125), respectively. Holders of Class H Common Stock have no
direct rights in the equity or assets of Hughes, but rather have rights in the
equity and assets of General Motors (which includes 100% of the stock of
Hughes). See "Appendix A--Common Stock--Liquidation Rights."
RECAPITALIZATION
Under the General Motors Certificate of Incorporation, all outstanding shares
of Class H Common Stock may be recapitalized as shares of $1 2/3 Par Value
Common Stock (i) at any time after December 31, 1995, in the sole discretion of
the General Motors Board of Directors, subject to certain conditions based on
the amount of dividends paid on Class H Common Stock during the five full
fiscal years prior to the proposed recapitalization, or (ii) automatically, if
at any time General Motors disposes of substantially all of the business of HAC
(or its successors) or Delco Electronics. In the event of such a
recapitalization, each holder of Class H Common Stock would receive shares of
$1 2/3 Par Value Common Stock having a market value, as of the valuation date
provided for in the General Motors Certificate of Incorporation, equal to 120%
of the market value of such holder's Class H Common Stock on such valuation
date. Based on the dividends paid on Class H Common Stock in 1990 through 1994,
the conditions described in clause (i) above would be satisfied during 1995
(although the General Motors Board of Directors may not elect to recapitalize
Class H Common Stock as described in clause (i) until after December 31, 1995).
See "Appendix A--Common Stock--Recapitalization by Exchange of Stock."
CONSIDERATIONS RELATING TO MULTI-CLASS COMMON STOCK CAPITAL STRUCTURE
Class H Common Stock is one of three classes of General Motors common stock.
The General Motors Certificate of Incorporation restricts the power of the
General Motors Board of Directors to declare and pay dividends on any one of
the three classes of common stock to certain defined amounts which are
attributable to each separate class of common stock and based on the legally
available retained earnings of General Motors. For dividend purposes, this
restriction serves to preserve the interest in retained earnings of holders of
each class of GM common stock in relation to the interests therein of holders
of the other two classes. However, this restriction does not result in a
physical segregation of the assets of General Motors, Hughes or EDS, nor does
it result in the establishment of separate accounts or dividend or liquidation
preferences with respect to such assets for the benefit of the holders of any
of the three separate classes of General Motors common stock. Holders of Class
H Common Stock and Class E Common Stock have no direct rights in the equity or
assets of Hughes or EDS, but rather, together with holders of $1 2/3 Par Value
Common Stock, have certain liquidation rights in the equity and assets of
General Motors (which includes 100% of the stock of both Hughes and EDS).
19
The existence of multiple classes of common stock with separate dividend
rights as provided for in the General Motors Certificate of Incorporation can
give rise to potential divergences among the interests of the holders of each
of the separate classes of General Motors common stock with respect to various
intercompany transactions and other matters. Because General Motors is
incorporated under the Delaware General Corporation Law, the laws of Delaware
govern the duties of the General Motors Board of Directors with respect to such
divergences. Under Delaware law, the General Motors Board of Directors owes an
equal fiduciary duty to all holders of General Motors common stock and must act
with due care and on an informed basis in the best interest of General Motors
and all such stockholders, regardless of class. In this regard, the General
Motors Board of Directors, in the discharge of its fiduciary duties, takes
care, principally through its Capital Stock Committee (comprised entirely of
independent directors of General Motors), to oversee the policies, programs and
practices of General Motors which may impact the potentially divergent
interests of the three classes of General Motors common stock.
The By-Laws of General Motors, in defining the role of the Capital Stock
Committee, provide that such Committee shall oversee those matters in which the
three classes of stockholders may have divergent interests, particularly as
they relate to: (a) the business and financial relationships between General
Motors or any of its units with Hughes, General Motors or any of its units with
EDS, and between Hughes and EDS; (b) dividends in respect of, disclosures to
stockholders and the public concerning, and transactions by GM or any of its
subsidiaries in, shares of Class H Common Stock or Class E Common Stock; and
(c) any matters arising in connection therewith, all to the extent the
Committee may deem appropriate, and to recommend such changes in such policies,
programs and practices as the Committee may deem appropriate. In performing
this function, the Capital Stock Committee's role is not to make decisions
concerning matters referred to its attention, but rather to oversee the process
by which decisions concerning such matters are made. The Committee does this
with a view towards, among other things, assuring a process of fair dealing
among GM, Hughes and EDS as well as fairness to the interests of all GM
stockholders in the resolution of such matters.
HOWARD HUGHES MEDICAL INSTITUTE
As of the date hereof, HHMI owns 17,503,800 shares or approximately 18.5% of
the Class H Common Stock outstanding (based on the number of shares outstanding
as of February 28, 1995). After the completion of this offering, HHMI will own
2,503,800 shares or approximately 2.6% of the Class H Common Stock outstanding
(based on the number of shares outstanding as of February 28, 1995). See
"Selling Stockholder."
HHMI acquired its shares of Class H Common Stock in 1985 in connection with
GM's acquisition of HAC from HHMI. HHMI's investment in shares of Class H
Common Stock constitutes its single largest investment. HHMI is selling the
shares of Class H Common Stock offered hereby in order to diversify its
portfolio of investments and in light of the expiration on March 1, 1995 of
transfer restrictions on 15,000,000 of HHMI's shares of Class H Common Stock
under an agreement between General Motors and HHMI dated February 27, 1989, as
amended. After the sale of the shares offered hereby, HHMI's remaining shares
of Class H Common Stock would still constitute one of HHMI's largest equity
investments.
20
FINANCIAL REVIEW OF HUGHES AND ITS BUSINESS SEGMENTS
Class H Common Stock is one of three classes of General Motors common stock.
Dividends on Class H Common Stock may be declared and paid out of the assets of
General Motors only to the extent of (i) the paid in surplus of General Motors
attributable to Class H Common Stock plus (ii) an allocated portion of the
earnings of Hughes. See "Class H Common Stock--Dividend Policy." The following
Financial Review discusses the performance of Hughes and its business segments
for the years ended December 31, 1994, 1993 and 1992. Information concerning
General Motors and its consolidated financial performance, including
Management's Discussion and Analysis, may be found in the documents
incorporated herein by reference, including the GM 1994 Form 10-K.
Because the amount available for payment of dividends on Class H Common Stock
is based on the earnings of Hughes without giving effect to purchase accounting
adjustments related to the acquisition of HAC by General Motors, the financial
information in this Financial Review does not give effect to such purchase
accounting adjustments. For additional information, including the consolidated
financial statements of Hughes giving effect to the purchase accounting
adjustments, the reader should refer to Appendix B, to the consolidated
financial statements of General Motors and Hughes (including the notes thereto)
and Management's Discussion and Analysis which are included in the GM 1994 Form
10-K and are incorporated herein by reference and the other documents
incorporated herein by reference.
As described above under "Prospectus Summary--Summary Financial Data--
Hughes--Hughes Unaudited Summary Consolidated Pro Forma Segment Data," in order
to better reflect Hughes' strategic direction and the manner in which its
businesses are now managed, effective January 1, 1995, Hughes will report its
operations in three business segments. All financial data in this Prospectus
(other than that presented under "Prospectus Summary--Summary Financial Data--
Hughes--Hughes Unaudited Summary Consolidated Pro Forma Segment Data--Four
Business Segment Data" and in the Hughes Consolidated Financial Statements
included in Appendix B) are presented to reflect the new three business segment
presentation.
21
HUGHES
The following table sets forth unaudited summary Hughes consolidated pro
forma financial data. These data exclude purchase accounting adjustments
related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers........................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and Affiliates............ 4,953.6 4,387.4 3,901.4
Other Income--net.......................... 37.1 67.3 128.1
--------- --------- ---------
Total Revenues......................... 14,099.4 13,517.5 12,297.1
Restructuring Charge....................... -- -- 1,237.0
Operating Profit (Loss) (a)................ 1,630.4 1,460.1 (194.2)
Interest Expense........................... 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes... $ 1,652.4 $ 1,494.2 $ (126.7)
Effective Income Tax Rate.................. 34.7% 38.3% 37.0%
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)*................................... $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............. 92.1 88.6 75.3
Class H Dividend Base (Denominator)........ 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)*................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis*........ $ 2.62 $ 2.30 $ (2.29)
Dividends Per Share of Class H Common
Stock..................................... 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............. $ 1,501.8 $ 1,008.7 $ 702.7
Total Assets (b)........................... 11,845.2 10,988.0 10,956.3
Long-Term Debt and Capitalized Leases...... 353.5 416.8 711.0
Stockholder's Equity (b) (c)............... 4,970.5 4,199.0 3,562.1
Depreciation and Amortization (d).......... 470.2 503.5 487.1
Capital Expenditures (e)................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (f)......... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)........... 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*.............. 7.5 6.9 (7.6)
Return on Equity (b) (i)*.................. 22.9 23.7 (21.9)
Pre-Tax Return on Total Assets (b) (j)..... 14.5 13.6 (1.2)
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Holders of Class H Common Stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993 and
1992. See Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effects of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated
Net Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated
Net Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share in 1994, and $872.1 million, or $2.18 per
share in 1992.
22
Overview
Effective January 1, 1995, Hughes conducts its operations in three primary
business segments: Automotive Electronics; Aerospace and Defense Systems; and
Telecommunications and Space.
Hughes' sales of automotive electronics are heavily dependent on General
Motors' production of motor vehicles in North America, which is dependent on
market and industry conditions as well as work stoppages, labor strikes and
other matters affecting General Motors. The automotive industry is historically
cyclical. Hughes' sales of automotive electronics to GM NAO are also dependent
upon the level of Hughes-supplied electronic content (based on the number and
sophistication of electronic functions) per vehicle and the price of such
electronics. Since 1992, pursuant to its global sourcing initiative, GM NAO has
aggressively pursued price reductions from its suppliers and has provided
suppliers worldwide with the opportunity to bid for business customarily
sourced with Hughes. As a result, Hughes has reduced its prices to GM NAO and
Hughes expects prices to continue to decline.
Approximately 69% of Hughes' 1994 revenues in the Aerospace and Defense
Systems segment were attributable to the U.S. Department of Defense. Hughes'
business has been affected by efforts to reduce the U.S. budget deficit through
reductions in defense spending. While the precise effects on specific Hughes
programs cannot be known at this time, the general decline in the U.S. defense
budget in real dollars is expected to continue, intensifying the competition in
a highly competitive market. Hughes' strategy includes diversification of its
U.S. defense sales and, in 1994, no single U.S. Department of Defense program
accounted for more than approximately 10% of Hughes' Aerospace and Defense
Systems segment revenues (or approximately 4% of Hughes' total revenues), and
the ten largest U.S. Department of Defense programs, in the aggregate,
accounted for less than 45% of the Aerospace and Defense Systems segment
revenues. Hughes' contracts with the U.S. government are subject to termination
by the government either for its convenience or for default by Hughes and
awards may be contested by other bidders. Sales to the U.S. government may be
affected by changes in acquisition policies, budget considerations, changing
concepts in national defense, spending priorities, and other factors that are
outside Hughes' control. See "Business of Hughes--General--United States
Government Contracts."
In its Telecommunications and Space segment, Hughes' telecommunications
businesses compete with other communications technologies and systems, such as,
with respect to telecommunications systems for fixed and mobile applications,
fiber optics networks, cable systems, wire telephony and radio-based systems
and other satellite-based systems. In direct-to-home satellite broadcasting
services, Hughes competes and will compete in present and future
telecommunications markets with telephone companies, cable television, other
broadcast television and other entertainment services, including video rentals,
as well as direct broadcast services operated by others.
The impact of the factors described above has been mitigated, and, Hughes
believes, may continue to be mitigated, by reducing costs and increasing sales
of automotive electronics to international customers and North American
customers other than GM NAO, the diversification of Hughes' electronics-based
aerospace and defense products and systems, and the continuing strong sales of
satellite-based communications products and services.
As Hughes seeks to increase its international sales in all its business
segments, it will meet increased competition from foreign companies.
International operations also present risks not present in U.S. operations,
including stability of foreign governments, currency and exchange risks and
local political issues.
To the extent Hughes' financial information is affected by the factors
described above, such financial information may not necessarily be indicative
of Hughes' future operating results or financial condition.
23
Results of Operations
Hughes reported revenues of $14,099.4 million in 1994, an increase of 4.3%
over 1993, and $13,517.5 million in 1993, an increase of 9.9% compared with
1992 revenues of $12,297.1 million. The increase in revenues over the last
three years is largely the result of continued growth in the Automotive
Electronics segment, Aerospace and Defense Systems segment revenues generated
by the missile systems business acquired from General Dynamics Corporation
("General Dynamics") in August 1992, and the ongoing success in the
Telecommunications and Space segment. However, lower production rates and
planned terminations on several defense programs resulted in a decline in
Aerospace and Defense Systems segment revenues in 1994. Approximately 35.1%,
32.5% and 31.7% of Hughes' total revenues in 1994, 1993 and 1992, respectively,
were attributable to sales to General Motors and its affiliates, and are
primarily included in the Automotive Electronics segment. International
revenues accounted for approximately 19.0%, 15.9% and 14.2% of Hughes' revenues
in 1994, 1993 and 1992, respectively. Revenues under U.S. government contracts
accounted for approximately 37.6%, 44.2% and 46.1% of Hughes' total revenues in
1994, 1993 and 1992, respectively, and are primarily included in the Aerospace
and Defense Systems segment and the Telecommunications and Space segment. See
"Business of Hughes--General--United States Government Contracts."
Included in revenues is other income of $37.1 million, $67.3 million and
$128.1 million for 1994, 1993 and 1992, respectively. The 1994 amount includes
a $35.0 million pre-tax charge for the expected loss on disposition of a
subsidiary. The 1993 amount includes a gain of $89.7 million on the sale of
Hughes' 30% interest in Japan Communications Satellite Company, Inc. ("JCSAT")
and a $55.0 million charge related to the sale of Rediffusion and related
entities in December 1993. The 1992 amount includes proceeds of $35.0 million
from settlement of a patent infringement suit and a $28.0 million gain
resulting from the formation of the Hughes-JVC Technology joint venture.
Operating profit was $1,630.4 million in 1994, an increase of 11.7% over
1993, and $1,460.1 million in 1993, an increase of 40.0% compared to 1992
operating profit of $1,042.8 million (excluding the 1992 special provision for
restructuring described below). Operating profit margin (operating profit
divided by net sales), on a comparable basis, was 11.6%, 10.9%, and 8.6% in
1994, 1993, and 1992, respectively. The improvement in both operating profit
and operating profit margin over this time period was primarily the result of
the continuing emphasis on cost reduction efforts, most notably in the
Automotive Electronics segment and the Aerospace and Defense Systems segment,
and the overall growth in revenues.
Selling, general, and administrative expenses were $1,018.3 million in 1994,
an increase of 9.6% over 1993, and $929.1 million in 1993, a decrease of 10.3%
compared to $1,036.2 million in 1992. Selling, general and administrative
expenses were 7.2%, 6.9% and 8.4% of revenues in 1994, 1993 and 1992,
respectively. The $89.2 million increase in 1994 was primarily due to the
commencement of nationwide DIRECTV service and increased international sales
activities in Hughes' telecommunications equipment and services business. The
decrease of $107.1 million in 1993 was primarily due to cost reductions
resulting from restructuring activities which began in the second half of 1992.
Interest expense decreased 54.5% in 1994 and 45.2% in 1993 primarily due to
an overall decrease in debt balances and an increase in the amount of
capitalized interest associated with the construction of telecommunications and
other equipment.
The effective income tax rate was 34.7%, 38.3%, and 37.0% in 1994, 1993, and
1992, respectively. The lower 1994 tax rate resulted from the recognition of
capital loss carryforward benefits. The Revenue Reconciliation Act of 1993 did
not have a material adverse effect on Hughes' 1994 or 1993 earnings and is not
expected to have a significant impact in future years.
24
Hughes' 1994 earnings were $1,049.2 million, or $2.62 per share of Class H
Common Stock, an increase of 13.8% compared with 1993 earnings of $921.6
million, or $2.30 per share, and a loss in 1992 of $921.6 million or $2.29 per
share. Earnings in 1994 include the unfavorable effect of an accounting change
for postemployment benefits, while 1992 earnings included the restructuring
charge described below and the accounting changes for postretirement benefits
and revenue recognition described below. Excluding these special items, Hughes'
earnings in 1994 and 1992 would have been $1,079.6 million, or $2.70 per share,
and $699.9 million, or $1.76 per share, respectively.
Hughes took a special charge in June 1992 of $1,237.0 million ($749.4 million
after-tax, or $1.87 per share of Class H Common Stock), for the restructuring
of Hughes' non-automotive operations. The special charge comprehended a
reduction of Hughes' worldwide employment, a major facilities consolidation,
and a reevaluation of certain business lines that no longer met Hughes'
strategic objectives. Restructuring costs of $228.3 million, $527.6 million and
$250.9 million were charged against the reserve during 1994, 1993, and 1992,
respectively. In addition, in 1994 and 1993 the restructuring reserve was
increased by $35.0 million and $78.0 million, respectively, primarily due to
changes in the estimated loss on disposition of two subsidiaries. The remaining
liability of $343.2 million relates primarily to reserves for excess leased
facilities and other site consolidation costs. Approximately $288.2 million of
this amount will require future cash outflows. It is expected that these costs
will be expended predominantly over the next three years.
Hughes adopted SFAS No. 112, Employers' Accounting for Postemployment
Benefits, effective January 1, 1994. This Statement requires accrual of the
costs of benefits provided to former or inactive employees after employment,
but before retirement. The cumulative effect of this accounting change as of
January 1, 1994 was $49.6 million, or $30.4 million after-tax ($0.08 per share
of Class H Common Stock).
Hughes adopted SFAS No. 106 in January 1992. This Statement requires that the
cost of postretirement benefits other than pensions be recognized in the
financial statements during the period employees provide service to Hughes.
Hughes' previous practice was to recognize the cost of such postretirement
benefits when incurred (pay-as-you-go). The cumulative effect of this
accounting change as of January 1, 1992 was $1,366.6 million, or $832.1 million
after-tax ($2.08 per share of Class H Common Stock).
Hughes has disclosed in its financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, Hughes does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of Hughes (other than
pensions) represent enforceable liabilities of Hughes.
Hughes changed its revenue recognition policy for certain commercial long-
term contracts effective January 1, 1992 from the percentage-of-completion
method to the units-of-delivery method. The unfavorable effect of this change
was $40.0 million after-tax, or $0.10 per share of Class H Common Stock.
The 1994 year-end backlog of $13,210 million remained relatively unchanged
from the 1993 amount of $13,399 million. Year-end 1993 backlog decreased $623
million from the $14,022 million reported in 1992 primarily due to the sale of
Rediffusion. A portion of the backlog is subject to appropriation decisions by
the U.S. government subsequent to award. In addition, Hughes' contracts with
the U.S. government are subject to termination by the government either for its
convenience or for default by Hughes. Sales to the U.S. government may be
affected by changes in acquisition policies, budget considerations, changing
concepts in national defense, spending priorities, and other factors that are
outside Hughes' control. See "Business of Hughes--General--United States
Government Contracts."
25
Liquidity and Capital Resources
Hughes' balance sheet strengthened further in 1994 as cash and cash
equivalents increased $493.1 million to $1,501.8 million at December 31, 1994.
Operating activities provided net cash of $1,376.8 million in 1994 as Hughes
achieved record earnings while aggressively managing working capital.
Additional cash of $200 million was generated by the collection of a note
receivable from General Motors. Cash was used to fund capital expenditures for
property and special tools and telecommunications and other equipment
(primarily related to the DIRECTV service), as well as to pay dividends to
General Motors.
Cash and cash equivalents at December 31, 1993 amounted to $1,008.7 million,
a $306.0 million increase from $702.7 million at December 31, 1992. The
increase was due to net cash provided by operating activities of $1,493.5
million, partially offset by net cash used in investing and financing
activities. Proceeds from the sale of investments and businesses, and from the
disposal of property, generated an additional $396.6 million of cash in 1993.
Cash was used primarily to fund capital expenditures, reduce outstanding debt
and pay dividends to General Motors.
As a measure of liquidity, the current ratio (ratio of current assets to
current liabilities) was 1.76 at December 31, 1994, 1.61 at December 31, 1993,
and 1.44 at December 31, 1992. These increases were due to the build-up of cash
balances described above.
Property, net of accumulated depreciation, decreased $22.6 million in 1994
while telecommunications and other equipment, net of accumulated depreciation,
increased $304.1 million primarily due to expenditures related to the DIRECTV
service.
Total capital expenditures (including both property and equipment and
telecommunications and other equipment) were $746.3 million, $580.0 million and
$558.5 million in 1994, 1993 and 1992, respectively. Management anticipates
that total capital expenditures will increase to approximately $875 million in
1995 and will be financed primarily from cash provided by operating activities.
Expenditures for property and equipment were $490.5 million in 1994 compared
with $448.9 million and $456.9 million in 1993 and 1992, respectively.
Management anticipates that capital expenditures in 1995 will increase
approximately $160 million over 1994 and will be financed primarily from cash
provided by operating activities.
Telecommunications and other equipment expenditures were $255.8 million in
1994 compared with $131.1 million and $101.6 million in 1993 and 1992,
respectively. Management anticipates that telecommunications and other
equipment expenditures in 1995 will decrease approximately $30 million from
1994 and will be financed primarily from cash provided by operating activities.
Long-term debt and capitalized leases was $353.5 million at December 31,
1994, a decrease of $63.3 million from $416.8 million at December 31, 1993,
reflecting scheduled principal payments. Long-term debt and capitalized leases
decreased $294.2 million in 1993, from $711.0 million at December 31, 1992,
partially due to the prepayment of debt to GM arising in connection with the
General Dynamics missile systems business acquisition and the repayment of
certain Japanese yen debt related to Hughes' investment in JCSAT. The ratio of
long-term debt and capitalized leases to the total of such debt and pro forma
stockholder's equity decreased to 6.6% in 1994 from 9.0% in 1993, and 16.6% in
1992.
In evaluating both its pension and retiree medical liabilities, Hughes
recognized the impact of the recent increase in long-term interest rates by
increasing the discount rate used in determining the actuarial present values
of the projected benefit obligations. In 1994, the weighted average discount
rate for pension obligations for Hughes' non-automotive employees increased
from 7.5% to 8.75% and the weighted average discount rate for Hughes' other
postretirement benefits increased from 6.99% to 8.57%.
For information concerning litigation affecting Hughes, see Note 17 to the
Hughes Consolidated Financial Statements included in Appendix B and the GM 1994
Form 10-K, which is incorporated herein by reference.
26
AUTOMOTIVE ELECTRONICS SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Automotive Electronics segment.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues....................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues.... 37.0% 32.9% 32.0%
Net Sales...................................... $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)........................... 794.8 624.3 463.2
Operating Profit Margin (b).................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................. $ 142.2 $ 146.8 $ 121.4
Capital Expenditures........................... 166.4 148.2 263.9
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit as a percentage of Net Sales.
Revenues in the Automotive Electronics segment increased in 1994 to $5,221.7
million from $4,453.4 million in 1993, a 17.3% increase, as compared with
$3,935.3 million in 1992, a 13.2% increase in 1993. The increases are primarily
attributable to three factors: (1) an increase in Hughes-supplied electronic
content per GM North American-produced vehicle to $857 in 1994 from $782 and
$760 in 1993 and 1992, respectively; (2) an increase in GM North American
vehicle production of 8% between 1994 and 1993 and 9% between 1993 and 1992;
and (3) an increase in sales to customers other than GM NAO to $672 million in
1994 from $603 million and $484 million in 1993 and 1992, respectively. See
"Automotive Electronics" for further discussion of these factors and their
effect on Hughes revenues.
Operating profit for the Automotive Electronics segment steadily increased
over the last three years. In 1994, operating profit was $794.8 million
compared with $624.3 million in 1993 and $463.2 million in 1992. The increases
are attributable not only to the increased electronic content per vehicle and
higher vehicle volumes, but also to an aggressive cost reduction program at
Delco Electronics, which has yielded cost savings (without giving effect to
inflation) of 11%, 10% and 9% in 1994, 1993, and 1992, respectively. The
operating profit margin was 15.4%, 14.0%, and 11.8% in 1994, 1993, and 1992,
respectively. Operating profit margins beyond 1995 are not expected to be
maintained at the current level due to the potential for reduced auto
production volumes, increased pricing pressures, and GM NAO's global sourcing
initiatives. See "Automotive Electronics."
Depreciation and amortization in the Automotive Electronics segment was
$142.2 million, $146.8 million and $121.4 million in 1994, 1993 and 1992,
respectively. The increase from 1992 to 1993 was due to additional depreciation
related to the upgrade and expansion of facilities completed in 1993. Hughes
anticipates that the Automotive Electronics segment's depreciation and
amortization expenses, excluding tool bill recovery fluctuations, will increase
as new and expanded facilities are brought on-line.
Capital expenditures in the Automotive Electronics segment increased to
$166.4 million in 1994, compared with $148.2 million in 1993, a decrease of
$115.7 million from 1992. The increase in capital spending in 1994 reflects
expenditures for technology upgrades at certain facilities. The decrease in
capital spending in 1993 reflects the completion of several projects to upgrade
and expand facilities and a decrease in expenditures related to model changes.
27
AEROSPACE AND DEFENSE SYSTEMS SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Aerospace and Defense Systems segment. These data
exclude purchase accounting adjustments related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues...................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues... 42.7% 47.9% 47.4%
Net Sales..................................... $6,007.3 $6,442.9 $5,781.8
Restructuring Charge.......................... -- -- 911.8
Operating Profit (Loss) (a)................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............ 11.0% 10.3% (8.1)%
Depreciation and Amortization (c)............. $ 158.5 $ 201.2 $ 219.1
Capital Expenditures.......................... 159.5 131.4 100.3
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments
related to GM's acquisition of HAC amounting to $100.9 million in
1994, 1993 and 1992. See Note 7 to Hughes' Consolidated Financial
Statements in Appendix B.
Aerospace and Defense Systems segment revenues were $6,023.6 million in 1994,
a 6.9% decrease from 1993 revenues of $6,472.2 million. The decline was
principally due to the full year impact of lower production rates and planned
terminations on several U.S. defense programs. Revenues increased $645.2
million, or 11.1%, between 1993 and 1992. The increase was due largely to
revenues from a full year of operations of the missile systems business
acquired in August 1992 from General Dynamics, as well as increased effort on
the Peace Shield air defense system for Saudi Arabia.
Operating profit in the Aerospace and Defense Systems segment of $663.6
million in 1994 remained relatively unchanged from $664.2 million in 1993,
compared with $445.2 million (excluding the restructuring charge described
above) in 1992. Operating profit in 1994 was negatively impacted by air traffic
control contract costs for which the expected revenues are not yet recognizable
for financial reporting purposes, pending contract negotiations. Such decrease
was offset by benefits derived from ongoing efforts to reduce costs. The
increase in 1993 over 1992 reflects the ongoing efforts to reduce costs across
Hughes' aerospace and defense businesses and continued benefits from the
acquisition and consolidation of the missile systems business acquired from
General Dynamics in August 1992. Future operating profits could be negatively
impacted by further reductions in the U.S. defense budget.
Depreciation and amortization expense in the Aerospace and Defense Systems
segment decreased from 1992 to 1994, largely because of the disposition of
excess assets and facilities in conjunction with the 1992 restructuring and the
consolidation of Hughes' missile systems business.
Capital expenditures in the Aerospace and Defense Systems segment for 1994,
1993 and 1992 were $159.5 million, $131.4 million and $100.3 million,
respectively. The increases in 1994 and 1993 were due to expenditures related
to the consolidation of facilities in an effort to increase the operational
efficiencies of manufacturing and engineering activities.
28
TELECOMMUNICATIONS AND SPACE SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Telecommunications and Space segment. These data
exclude purchase accounting adjustments related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues....................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues.... 18.4% 16.6% 16.1%
Net Sales...................................... $2,633.8 $2,135.8 $1,972.9
Restructuring Charge........................... -- -- 195.3
Operating Profit (a)........................... 271.0 209.6 50.7
Operating Profit Margin (b).................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c).............. $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)....................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments
related to GM's acquisition of HAC amounting to $21.0 million in 1994,
1993 and 1992. See Note 7 to Hughes' Consolidated Financial Statements
in Appendix B.
(d) Includes expenditures related to telecommunications and other
equipment amounting to $255.8 million, $131.1 million and $101.6
million in 1994, 1993 and 1992, respectively.
Revenues in the Telecommunications and Space segment were $2,596.2 million in
1994, a 16.0% increase over 1993 revenues of $2,238.3 million. The increase
resulted from higher cellular communications equipment and private business
network sales, additional satellite transponder sales, increased satellite
construction sales, and the commencement of DIRECTV service. Revenues for 1993
were 12.9% higher than 1992 revenues of $1,982.4 million. The 1993 increase in
revenues reflects additional sales of satellites to commercial customers and
increased sales of fixed wireless and cellular communications equipment and
services internationally.
Operating profit in the Telecommunications and Space segment increased in
1994 to $271.0 million, a 29.3% increase over the $209.6 million reported in
1993. The improvement is a result of the sale of additional satellite
transponders and increased cellular communications equipment, private business
networks and satellite construction sales, partially offset by higher operating
expenses relating to the commencement of DIRECTV service. Excluding the 1992
restructuring charge, 1993 operating profit declined 14.8% from 1992 operating
profit of $246.0 million. The decrease was due to a reduction in revenues from
satellite transponder sales and an increase in costs related to the DIRECTV
service, partially offset by the recognition of cost savings from satellite
construction activities in 1992. Operating profit margins were 10.3% in 1994,
9.8% in 1993 and 2.6% in 1992. The 1995 margin will be negatively impacted by
the increased operating expenses associated with the continued expansion of the
DIRECTV service. After 1995, the Telecommunications and Space segment's
operating margins are expected to increase as the DIRECTV service becomes
profitable.
Depreciation and amortization was $140.8 million in 1994, $114.0 million in
1993 and $122.8 million in 1992. The increase in depreciation and amortization
between 1992 and 1994 is due principally to the increases in telecommunications
and other equipment described below.
Capital expenditures, including expenditures related to telecommunications
and other equipment, increased to $399.3 million from $271.8 million in 1993
and $182.7 million in 1992, primarily reflecting continuing investment in
satellite and ground equipment associated with the DIRECTV service.
29
Telecommunications and other equipment expenditures were $255.8 million in
1994, $131.1 million in 1993 and $101.6 million in 1992. Hughes expects to
pursue global telecommunications opportunities which would likely increase the
expenditures for telecommunications and other equipment in the near term.
CORPORATE AND OTHER
Included in Corporate and Other are business units not reported in any of
the three segments described above, including Avicom, certain portions of the
former HIEC and, prior to 1994, Rediffusion.
Corporate and Other revenues were $257.9 million in 1994, a 27.1% decline
from 1993 revenues of $353.6 million. Revenues for 1993 were 36.0% lower than
1992 revenues of $552.4 million. The decline in 1994 was primarily due to the
sale of Rediffusion in December 1993, while the decline in 1993 was primarily
due to reduced sales at Rediffusion and the nonrecurring other income items
described below. The 1993 amount includes a $55.0 million charge related to
the sale of Rediffusion and related entities in December 1993 and the 1992
amount includes proceeds of $35.0 million from settlement of a patent
infringement suit and a $28.0 million gain resulting from the formation of a
Hughes-JVC Technology joint venture.
The operating loss attributed to Corporate and Other in 1994 was $99.0
million, compared with operating losses of $38.0 million in 1993 and $111.6
million (excluding the restructuring charge of $129.9 million described above)
in 1992. The operating loss in 1994 was primarily attributable to an $83
million operating loss at Avicom resulting from additional costs and revenue
deferral related to product development and initial systems service of its in-
flight entertainment systems. See "Corporate and Other."
OVERVIEW OF HUGHES BUSINESS
Hughes, a wholly-owned subsidiary of General Motors, develops, manufactures
and markets automotive electronics products and systems, aerospace and defense
electronics products and systems, and satellites and satellite-based
communications systems, and provides related services. Based on the most
recently available Fortune 500 survey, Hughes on an independent basis would
have ranked among the 40 largest industrial corporations in the United States.
Hughes is one of the world's leading suppliers of automotive electronics, a
leading supplier of aerospace and defense electronics systems and a world
leader in the manufacture and private ownership and operation of
communications satellites. Hughes provides a broad range of satellite-related
services and is a leader in the United States direct broadcast satellite
market with its programming distribution service known as DIRECTV, which was
introduced in 1994 and is the first high-powered, all digital direct-to-home
television distribution service in North America.
Hughes currently conducts its operations in three primary business segments:
Automotive Electronics; Aerospace and Defense Systems; and Telecommunications
and Space. In 1994, these segments represented, respectively, 37%, 43% and 18%
of Hughes' revenues and 49%, 41% and 17% of Hughes' operating profit
(excluding purchase accounting adjustments related to GM's acquisition of HAC)
and operations reported as Corporate and Other represented approximately 2% of
revenues and reported an operating loss of $99.0 million. See "Corporate and
Other."
Hughes seeks to enhance its profitability and status as a growth company in
the increasingly competitive worldwide market for advanced electronics
products and systems through cost competitiveness, technological leadership,
growth and diversification of its product lines, expanded international and
non-defense activities, and increased market leadership through strategic
acquisitions and divestitures. Hughes believes that its continued growth will
depend largely upon the factors discussed below. Hughes participates in
markets that are highly competitive. See "Business of Hughes--General--
Competition." In addition, Hughes will meet increased competition from foreign
companies as it seeks to increase its international sales. International
operations present risks not present in U.S. operations, including stability
of foreign governments, currency and exchange rate risks and local political
issues.
30
MAINTAINING COMPETITIVE POSITION WITH GM NAO AND EXPANDING OTHER
AUTOMOTIVEELECTRONICS SALES
Hughes, through its wholly-owned subsidiary, Delco Electronics, is one of the
world's leading suppliers of automotive electronics. Hughes' strategy in its
Automotive Electronics segment is to maintain its position as a principal
supplier to GM NAO while continuing to expand sales to international and other
customers. Hughes' sales of automotive electronics are heavily dependent on
General Motors' production of motor vehicles in North America, the level of
Hughes-supplied electronic content (based on the number and sophistication of
electronic functions) per vehicle and the price of such electronics. Since the
1980's, Hughes revenues per GM North American vehicle have increased each year,
primarily as a result of increased electronic content. Since 1992, pursuant to
its global sourcing initiative, GM NAO has aggressively pursued price
reductions from its suppliers and has provided suppliers worldwide with the
opportunity to bid for business customarily sourced with Hughes. Hughes
believes that it has been and will continue to be able to compete effectively
for GM NAO business because of the quality of its products, its on-going cost
reduction efforts, and its product and technological innovations. In 1993 and
1994, Hughes won approximately 93% of all globally sourced, competitive bids
for GM NAO automotive electronics business for which Hughes competed (based on
the dollar value of all bids submitted by Hughes). Hughes expects that the
number and sophistication of electronic functions in vehicles will continue to
increase, but that its prices to GM NAO will continue to decrease as a result
of GM NAO's global sourcing initiative and increasing electronic sophistication
at lower prices. As a result, Hughes expects that its revenues per GM North
American vehicle will remain constant or decrease after 1995, unless Hughes is
able to achieve its goal of mitigating the effect of continuing price
reductions for current products by developing, producing and expanding sales of
enhanced products. Hughes believes that, utilizing its core technologies,
opportunities exist for products offering consumers enhanced safety,
convenience and performance. Moreover, Hughes believes that it will be able to
mitigate the effect of GM NAO price reductions on operating profit through its
demonstrated ability to reduce costs. In addition, Hughes anticipates increased
sales to other domestic and international customers. During 1994, approximately
35% (by dollar value) of Delco Electronics' contracts for new business were
with customers other than GM NAO. Deliveries under such contracts are expected
to begin in 1996. Hughes intends, where appropriate, to enter into strategic
alliances and partnering arrangements and to make acquisitions to enhance its
ability to compete for international business. Hughes believes it can realize
further growth by expanding the after-market distribution of its products, and
developing products for new markets, such as engine management controllers for
small engine and marine applications. See "Automotive Electronics."
STRENGTHENING ITS LEADERSHIP POSITION IN THE AEROSPACE AND DEFENSE SYSTEMS
MARKET
Hughes has been a major producer of electronics-based aerospace and defense
products and systems for more than four decades. Hughes has positioned itself
as a leading developer and producer of a variety of tactical programs and as a
subcontractor for certain types of subsystems for strategic purposes rather
than seeking to become a prime contractor for major strategic weapons platforms
such as tanks and aircraft. This permits Hughes to participate in major
segments of the defense market while reducing the impact of specific program
cancellations. Hughes is a leading supplier of defense electronics products and
services to the U.S. government, participating in approximately half of the
current U.S. tactical missile programs, and Hughes' airborne radar units are
deployed on four of the five U.S. military front-line fighter aircraft. Hughes'
business strategy is to strengthen its leadership position in aerospace and
defense electronics systems and services through continued emphasis on
technological advances, operational efficiencies, cost reduction and
competitiveness. Due to its technological capabilities and the volume of its
products and systems in operation around the world, Hughes believes it can
capitalize on the opportunities presented by the continuing trend toward
upgrading and retrofitting electronic systems as a cost effective alternative
to developing new strategic weapons platforms. Hughes also intends to continue
its strategy of reducing its vulnerability to reductions in U.S. defense
spending by diversifying its customer base and product line, with emphasis on
international markets and non-defense government agencies. Hughes also seeks to
diversify its
31
product lines and customer base (i.e. branches of the U.S. military) with
respect to U.S. defense sales. During 1994, no single U.S. Department of
Defense program accounted for more than 10% of Hughes' Aerospace and Defense
Systems segment revenues (or approximately 4% of Hughes' total revenues), and
the ten largest U.S. Department of Defense programs, in the aggregate,
accounted for less than 45% of the Aerospace and Defense Systems segment
revenues. In support of these strategies, Hughes intends, where appropriate,
to enter into strategic alliances and partnering arrangements and to make
strategic acquisitions and divestitures such as its 1992 acquisition of the
missile systems business of General Dynamics and its 1995 acquisition of the
training systems and services business of CAE-Link Corporation ("CAE-Link").
Hughes also believes that its reorganization of its Aerospace and Defense
Systems segment effective for 1995 will further enhance its ability to compete
in a more cost efficient manner. See "Aerospace and Defense Systems."
CONTINUING EXPANSION OF SATELLITE AND DIGITAL COMMUNICATIONS SYSTEMS AND
DIRECT BROADCASTING SERVICES
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of communications satellites and is the world's leading
supplier of satellite-based private business networks. Hughes also provides a
broad range of satellite-related services and is a leader in the U.S. direct
broadcast satellite market with its programming distribution service known as
DIRECTV, which was introduced in 1994 and is the first high-powered, all
digital direct-to-home television distribution service in North America.
Hughes seeks to capture more of the value-added benefits of the satellite-
based services market by capitalizing on its technological capabilities, the
size and desirable orbital locations of its satellite fleet and its management
expertise in satellite operations. Hughes' strategy also includes building on
its technology and experience to develop new applications for its satellite-
based services for governments, businesses and consumers and expanding
international sales. Hughes believes significant opportunities exist for it in
mobile wireless communications systems and, in areas with deficient
communications infrastructures (such as developing nations), fixed wireless
telecommunications networks for local and international telecommunications,
and direct-to-home satellite-based programming distribution services. Hughes
has entered into a partnership to introduce satellite-based direct broadcast
entertainment into Latin America and is exploring other international
opportunities based on its experience developed in connection with the DIRECTV
service. Hughes' strategy also includes developing new satellite-based
technologies for opportunities such as satellite-based data communications for
personal computers and new systems for telephone, video and data
communications. In addition, Hughes seeks to maintain its strong position in
satellite manufacturing and to continue to increase the profitability of its
manufacturing operations through more efficient production processes. See
"Telecommunications and Space."
AUTOMOTIVE ELECTRONICS
Hughes, through its wholly-owned subsidiary, Delco Electronics, is one of
the world's leading suppliers of automotive electronics, with an estimated 23%
share of worldwide automotive electronics sales in 1994. Hughes is currently
the principal supplier of automotive electronics to GM NAO. In 1994,
approximately 86% (or $4.5 billion) of Hughes' Automotive Electronics segment
revenues were attributable to sales to GM NAO, with the remaining 14%
resulting from sales to customers (including GM operations outside of North
America) other than GM NAO. In 1994, the Automotive Electronics segment
accounted for approximately 37% of Hughes' revenues and approximately 49% of
Hughes' operating profit (excluding purchase accounting adjustments related to
GM's acquisition of HAC).
Hughes' strategy is to maintain its position as a principal supplier of
automotive electronics to GM NAO while continuing to expand its sales to
international and other customers. Sales to GM NAO are heavily dependent on GM
motor vehicle production, which is dependent on market and industry conditions
as well as work stoppages, labor strikes and other factors affecting General
Motors. In addition, the automotive industry is historically cyclical. Hughes'
sales of automotive electronics to GM NAO are also
32
dependent upon the level of Hughes-supplied electronic content (based on the
number and sophistication of electronic functions) per vehicle and the price
of such electronics. Since the 1980's, Hughes' revenues per GM North American
vehicle have increased each year, primarily as a result of increased
electronic content. Since 1992, pursuant to its global sourcing initiative, GM
NAO has aggressively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. Hughes believes that due to the quality of
its products, its on-going cost reduction efforts, and product and
technological innovations, it has been and will continue to be able to compete
effectively for GM NAO business. In 1993 and 1994, Hughes won approximately
93% of all globally sourced, competitive bids for GM NAO automotive
electronics business for which Hughes competed (based on the dollar value of
all bids submitted by Hughes).
Hughes expects that the level of electronic functions in GM North American
vehicles will continue to increase, but that its prices to GM NAO will
continue to decrease as a result of GM NAO's global sourcing initiative and
increasing electronic sophistication at lower prices. As a result, Hughes
expects that its revenues per GM North American vehicle will remain constant
or decrease after 1995, unless Hughes is able to achieve its goal of
mitigating the effect of continuing price reductions for current products by
developing, producing and expanding sales of enhanced products. Hughes
believes that, utilizing its core technologies, opportunities exist for
products offering consumers enhanced safety, convenience and performance.
Moreover, Hughes believes that it will be able to mitigate the effect of GM
NAO price reductions on operating profit through its demonstrated ability to
reduce costs. In addition, Hughes anticipates increased sales to other
domestic and international customers. During 1994, approximately 35% (by
dollar value) of Delco Electronics' contracts for new business were with
customers other than GM NAO. Deliveries under such contracts are expected to
begin in 1996. Hughes believes it can realize further growth by expanding the
after-market distribution of its products and developing products for new
markets, such as engine management controllers for small engine and marine
applications.
Hughes believes consumer demand for vehicles with enhanced safety,
convenience and performance features will provide opportunities for additional
revenues from Hughes-supplied automotive electronics on GM North American
vehicles. Examples include passenger-side and side-impact air bags, improved
audio systems, advanced instrumentation and air controls and anti-theft
security devices. Hughes believes other opportunities exist as a result of new
products based on Hughes core technologies such as head-up displays, collision
warning and avoidance systems, and enhanced vehicle navigation and
communication systems. Successful commercialization of these products will
depend on, among other things, consumer acceptance, affordability and the
ability to achieve high volume production of sophisticated products, which
cannot be assured.
Delco Electronics' aggressive cost reduction programs have yielded
substantial cost savings over the last several years. Hughes continues to work
aggressively to reduce its costs for automotive electronics in order to
maintain its competitiveness with respect to both GM NAO and other sales. By
improving product design and manufacturing techniques, Hughes has been able to
and expects to continue to improve its production methods while reducing its
costs of production. More than half of Hughes' automotive electronics products
manufacturing is conducted outside the United States, resulting in substantial
cost savings as compared to U.S. operations. Other efforts to reduce costs
include business process re-engineering, purchases of components from
unaffiliated suppliers, synchronous workshops, supplier cost improvement
programs and a global electronics manufacturing strategy.
Hughes anticipates continuing to grow its automotive electronic
international sales (including sales to GM's international operations and
affiliates) and its sales to North American customers other than GM NAO by
capitalizing on its cost reduction efforts, product quality and technology
together with its worldwide manufacturing capabilities and capacities. The
average levels of electronic content of vehicles outside North America are
substantially below levels in the United States, presenting significant
business opportunities to Hughes. Delco Electronics has formed three customer-
focused business units to pursue more effectively sales to customers other
than GM NAO. Hughes intends, where appropriate, to enter into strategic
alliances and partnering arrangements and to make acquisitions to enhance its
ability to compete for international business.
33
BUSINESS UNITS AND PRINCIPAL PRODUCTS
Hughes' automotive electronics operations are conducted primarily through
two product business units and three customer-focused business units. The two
product business units, Vehicle Electronics and Driver Systems, are
responsible for all product development activities and sales of end products
to GM NAO. Delco Electronics' three customer-focused business units, Delco
Electronics-Europe, Delco Electronics-Asia/Pacific and Delco Electronics-
Americas, have production responsibility outside of North America, marketing
responsibility for sales to GM's international operations, and worldwide
marketing responsibility for sales to other customers. Delco Electronics-
Europe (headquartered in Wiesbaden, Germany) and Delco Electronics-
Asia/Pacific (headquartered in Singapore) have product and marketing
responsibility for Europe and the Asia/Pacific region, respectively. Delco
Electronics-Americas, established in 1994, has production and marketing
responsibility for customers in North America and South America other than GM
NAO.
The following table sets forth revenues of Hughes' Automotive Electronics
segment by business unit for each of the last three years.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
GM NAO Sales
Vehicle Electronics............................... $2,344 $1,842 $1,488
Driver Systems.................................... 2,155 2,006 1,955
------ ------ ------
Subtotal........................................ 4,499 3,848 3,443
Other Sales
Delco Electronics-Europe.......................... 284 240 222
Delco Electronics-Asia/Pacific.................... 168 106 83
Delco Electronics-Americas and Other ............. 220 257 179
------ ------ ------
Subtotal........................................ 672 603 484
Total Sales..................................... 5,171 4,451 3,927
Other Income.................................... 51 2 8
------ ------ ------
Total Revenues.................................. $5,222 $4,453 $3,935
====== ====== ======
The principal products of Hughes' two product business units for automotive
electronics sales to GM NAO are as follows:
PRINCIPAL PRODUCTS DESCRIPTION
------------------ -----------
VEHICLE ELECTRONICS
Engine Management Controllers......... Microprocessor-based controllers to optimize
engine performance, fuel economy and driveability
while reducing emissions and providing on-board
diagnostics.
Ignition Modules...................... Solid state spark-timing electronics for ignition
control.
Pressure Sensors...................... Micro-machined pressure sensors used primarily for
air-to-fuel ratio mix control.
Control Modules....................... Microprocessor-based controllers for engine,
transmission and other body and chassis functions.
Air Bag Control Modules
and Sensors.......................... Control modules and sensors for driver- and
passenger-side supplemental inflatable restraint
systems.
Anti-lock Brake Controllers........... Electronic systems which control the brakes to
prevent wheel lock-up.
PASS-Key(R)........................... Anti-theft vehicle security systems.
FOREWARN(R)........................... Microwave-based object detection systems.
34
PRINCIPAL PRODUCTS DESCRIPTION
------------------ -----------
DRIVER SYSTEMS
Audio Systems......................... Full line of audio systems ranging
from AM radios to integrated
compact disc receivers.
Amplifiers............................ Vehicle acoustic systems, including
speakers.
Instrument Panel Clusters............. Full line of instrumentation, from
traditional analog and digital
clusters to auxiliary displays,
such as head-up displays.
Air Controls.......................... Heater, ventilation and air
conditioner controls, ranging from
mechanical (or manual) to
electronic (or automatic).
TelepathTM 100........................ Satellite-based electronic
navigation system.
SALES TO GM NAO
Approximately 86% of Hughes' 1994 Automotive Electronics segment revenues
were attributable to sales to GM NAO. Hughes' sales of automotive electronics
to GM NAO, and thus Hughes' Automotive Electronics segment revenues, are
heavily dependent upon the level of General Motors' North American production
and sales of motor vehicles. Such sales by Hughes are also dependent on the
level of Hughes-supplied electronic content (based on the number and
sophistication of electronic functions) per vehicle and the price (or cost to
GM NAO) of such electronics. Since the 1980's, Hughes revenues per GM North
American vehicle have increased each year, primarily as a result of increased
electronic content. Since 1992, pursuant to its global sourcing initiative, GM
NAO has aggressively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. Hughes believes that it has been and will
continue to be able to compete effectively for GM NAO business because of the
quality of its products, its on-going cost reduction efforts, and its product
and technological innovations. In 1993 and 1994, Hughes won approximately 93%
of all globally sourced, competitive bids for GM NAO automotive electronics
business for which Hughes competed (based on the dollar value of all bids
submitted by Hughes).
Hughes expects that the level of electronic functions in vehicles will
continue to increase, but that its prices to GM NAO will continue to decrease
as a result of GM NAO's global sourcing initiative and increasing electronic
sophistication at lower prices. As a result, Hughes expects that its revenues
per GM North American vehicle will remain constant or decrease after 1995,
unless Hughes is able to achieve its goal of mitigating the effect of
continuing price reductions for current products by developing, producing and
expanding sales of enhanced products. Hughes believes that, utilizing its core
technologies, opportunities exist for products offering consumers enhanced
safety, convenience and performance. Moreover, Hughes believes that it will be
able to mitigate the effect of GM NAO price reductions on operating profit
through its demonstrated ability to reduce costs.
It is a policy of General Motors that a standard of fair dealing govern the
prices, terms and conditions of commercial transactions between Hughes
(including Delco Electronics) and General Motors. See "Relationship Between
General Motors and Hughes."
GM Production and Sales
The following table sets forth certain General Motors production, delivery
(sales to ultimate purchasers, including both retail and fleet customers) and
market share data for North America over the last three years.
1994 1993 1992
---- ---- ----
North American Motor Vehicle Production (in millions of
units)*.................................................. 5.2 4.8 4.4
North American Motor Vehicle Deliveries (in millions of
units)**................................................. 5.6 5.2 5.0
North American Motor Vehicle Market Share (%)**........... 32.3% 32.5% 33.1%
--------
*Includes units which are manufactured in the United States and Canada by
General Motors (excluding affiliates), available for sale anywhere in the
world.
** Includes units which are manufactured by other companies and which are sold
in North America by General Motors and its affiliates.
35
The automotive industry is historically cyclical and is dependent on general
market conditions, including interest rates. In addition, although not
necessarily leading to a permanent loss of volume, GM's vehicle production is
subject to interruptions from work stoppages, labor strikes, plant and
equipment failures and other conditions and events, many of which are beyond
the control of General Motors.
Electronic Content of Motor Vehicles
Since the 1980s, Hughes revenues per GM North American vehicle have
increased each year, primarily as a result of increases in the number and
sophistication of electronic functions. The increasing level of electronic
content of motor vehicles is reflected in the average Hughes electronics
dollar sales per vehicle produced by General Motors in the United States and
Canada (for sale anywhere in the world) and in Mexico (for sale in the United
States and Canada) from 1992 to 1994, as set forth in the following table:
AVERAGE HUGHES DOLLAR SALES
PER VEHICLE PRODUCED BY
GENERAL MOTORS IN NORTH
AMERICA
-----------------------------
1994 1993 1992
--------- --------- ---------
Vehicle Electronics........................ $ 448 $ 373 $ 325
Driver Systems............................. 409 409 435
--------- --------- ---------
Total.................................. $ 857 $ 782 $ 760
========= ========= =========
The Hughes-supplied electronic content per GM North American vehicle varies
among vehicle models and according to the options selected by customers, with
more expensive vehicles tending to have more sophisticated electronic
functions. Hughes believes that the functionality of automotive electronics in
GM NAO vehicles will continue to increase, principally as a result of
continued, and often increasingly stringent, regulatory standards for
automotive emissions and consumer demand for increased performance, all of
which will require more sophisticated electronic engine controls. In addition,
in the near term, Hughes believes that electronic components such as sensors
and controllers will be increasingly utilized to meet consumer preference for
enhanced safety and security features, such as anti-lock braking systems,
frontal and side-impact air bags and theft-deterrent systems. Hughes also
believes that future growth opportunities for electronic content may emerge in
new, enhanced safety and convenience products based on Hughes' core
technologies.
Automotive Emission Standards. Hughes believes that the use of sophisticated
engine control computers in the United States will continue to increase,
primarily because of increasingly stringent automotive emissions standards and
more sophisticated diagnostic requirements as defined by the 1990 Clean Air
Act and California Air Resources Board regulations and higher corporate
average fuel economy ("CAFE") standards. Hughes' engine control modules
increase fuel efficiency while helping to lower exhaust emissions.
Safety Features. Hughes expects consumer demand for vehicles with enhanced
safety features to contribute to the growth in automotive electronics
functionality. For example, 87% of GM North American passenger cars in 1994
were equipped with Hughes-supplied air bag control modules, as compared to 24%
in 1991 and 4% in 1989. Hughes is also developing side-impact air bag
controllers for GM vehicles manufactured in North America. Hughes currently
provides the majority of GM NAO's passenger car requirements for anti-lock
brake controllers.
Convenience Features. Hughes believes that the development and wider
acceptance of convenience features will continue, although consumer demand
will depend on the affordability of such features. Such products include
compact disc players, advanced instrumentation and air controls (such as a
dual-zone heater and air control which allows the driver and the front seat
passenger individually to adjust air temperature) and the PASS-Key Anti-Theft
Security Device.
New Products. In 1994, Hughes announced several new automotive electronics
products and product lines which it believes may contribute to future growth
in automotive electronic content in GM North American vehicles and other
vehicles. These products utilize Hughes' core technologies,
36
including technologies from its defense and telecommunications businesses. The
FOREWARN forward and rear-looking radar collision warning system, originally
introduced as a safety feature for school buses, is being expanded to include
side detection sensing and sensing for trucks and vans. Also announced was the
Rec-ignition family of remote keyless entry and personalization products for
security and convenience, which unlock vehicle doors and trunks and adjust
seats, side mirrors, steering wheel and climate control from a distance before
the driver enters the vehicle. Other new technologies introduced in 1994
included Telepath 100 (a satellite-based vehicle navigation system), low tire
pressure warning devices, and infant seat occupant sensors. For a description
of additional products under development, see "Development Projects."
Successful commercialization of these products will depend on, among other
things, consumer acceptance, affordability and ability to achieve high volume
production of sophisticated products, which cannot be assured.
GM NAO Sourcing Initiative; Competition
In 1994, 86% of Hughes' revenues from the Automotive Electronics segment were
derived from sales to GM NAO and Hughes supplied a substantial majority of GM
NAO's requirements for automotive electronics. The context in which Hughes
markets its automotive electronics products to General Motors was strongly
affected in 1992 by the formation of GM NAO and GM NAO's decision to source
globally its procurement needs. Pursuant to this global sourcing initiative, GM
NAO has aggressively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. As a result, Hughes has reduced its prices to
GM NAO and Hughes expects prices to continue to decline.
Hughes believes that it has been and will continue to be able to compete
effectively for GM business because of the quality of its products, its on-
going cost reduction efforts, and its product and technological innovations.
Hughes also believes that it derives a competitive advantage from its business
practice of placing Delco Electronics engineers at GM facilities to help
integrate Delco Electronics electronic products into GM's vehicle designs.
Hughes believes that its technological experience from its non-automotive
businesses also provides it with a competitive advantage in developing and
implementing new automotive electronic products. In 1993 and 1994, Hughes won
approximately 93% of all globally sourced, competitive bids for GM NAO
automotive electronics business for which Hughes competed (based on the dollar
value of all bids submitted by Hughes). There can be no assurance that Hughes
will continue to be awarded this high a proportion of GM NAO contracts for
which it bids. See also "Business of Hughes--General--Competition."
INTERNATIONAL AND OTHER SALES
Sales of Hughes' automotive electronics to customers other than GM NAO grew
at a 15% compounded annual rate from $382 million in 1990 to $672 million in
1994. In 1993 and 1994, Hughes was awarded approximately 23% of all orders
(excluding GM NAO orders) for which it has competed worldwide (based on the
dollar value of all bids submitted by Hughes). In 1994, approximately 35% (by
dollar value) of Delco Electronics contracts for new business were with
customers other than GM NAO. Deliveries under such contracts are expected to
begin in 1996. Hughes currently supplies automotive electronics products to
several customers worldwide, including Chrysler, Daewoo, Isuzu, Renault,
Toyota, John Deere, Nissan, BMW, Audi, Ford, Fiat and Mercedes. In 1993 and
1994, Hughes received major quality or productivity awards from Calsonic,
Nippondenso, Toyota, Isuzu, Nissan and NUMMI.
The levels of average electronic content of European-produced and Asian-
produced vehicles are currently substantially below the average level of
electronic content of vehicles sold in North America and Hughes believes that
the worldwide demand for automotive electronics should grow significantly
through the end of the decade. Hughes' customer-focused business units were
established to focus on these growth opportunities as Hughes seeks to
capitalize on its cost reduction efforts, product quality and technology,
together with its worldwide manufacturing capabilities and capacities, to
continue to grow international sales (including sales to GM's international
operations and affiliates) and sales to customers other than GM NAO. In 1994,
the Delco Electronics facilities in Singapore, Liverpool,
37
Milwaukee and in Matamoros and Reynosa, Mexico, were certified under ISO 9000,
a series of quality systems standards developed in 1987 by the International
Organization for Standardization, which has become a prerequisite for pursuing
contracts in Europe and Asia.
The success of Hughes' international and non-GM efforts will depend, among
other things, upon the availability of technical, manufacturing and other
resources. Competition in such markets is intense and not necessarily open to
all suppliers on equal terms. Suppliers of components and accessories to major
automobile manufacturers (including General Motors affiliates outside North
America) are often affiliated with their customers and typically have
longstanding relationships with them which entail specialized knowledge of
customer needs and preferences. Hughes intends, where appropriate, to enter
into strategic alliances and partnering arrangements and to make acquisitions
to enhance its ability to compete for international business.
DEVELOPMENT PROJECTS
To maintain its leadership in advanced electronics design and manufacturing,
Hughes continues to invest in research and development. Current projects
include a test of a new low-cost wireless traffic information system which
sends data over FM radio signals; participation in a consortium developing the
Automated Highway System ("AHS"), which will offer dedicated lanes in which
steering, braking and throttle of AHS-equipped vehicles are controlled through
special communications systems; and development of a comprehensive vehicle
crash avoidance system.
In addition, Hughes believes it is a leader in the development of the
electric vehicle. In 1994, Delco Propulsion Systems ("DPS") was formed to be
responsible for developing, sourcing and marketing opportunities and systems
for the global electric vehicle market. DPS is a joint effort of Hughes and the
Allison Transmission and Delphi Energy & Engine Management Systems divisions of
General Motors. In 1994, Hughes also announced the Dolphin(TM) electric vehicle
drive system, the first advanced AC drive system for electric vehicles to reach
production.
AEROSPACE AND DEFENSE SYSTEMS
Hughes has been a major producer of electronics-based aerospace and defense
products and systems for more than four decades. Hughes is a leading supplier
of defense electronics products and services to the U.S. government,
participating in approximately half of the current U.S. tactical missile
programs, and Hughes' airborne radar systems are deployed on four of the five
U.S. military front-line fighter aircraft. Hughes has effective research and
working knowledge in the scientific and technology thrusts currently listed by
the U.S. Department of Defense as being critical to the future of
the nation's defense. Hughes has positioned itself as a leading developer and
producer of a variety of tactical programs and as a subcontractor for certain
types of subsystems for strategic purposes rather than seeking to become a
prime contractor for major strategic weapons platforms such as tanks and
aircraft. This permits Hughes to participate in major segments of the defense
market while reducing the impact of specific program cancellations. During
1994, no single U.S. Department of Defense program accounted for more than 10%
of Hughes' Aerospace and Defense Systems segment revenues (or approximately 4%
of Hughes' total revenues), and the ten largest U.S. Department of Defense
programs, in the aggregate, accounted for less than 45% of the Aerospace and
Defense Systems segment revenues. In 1994, the Aerospace and Defense Systems
segment accounted for approximately 43% of Hughes' revenues and approximately
41% of Hughes' operating profits (excluding purchase accounting adjustments
related to GM's acquisition of HAC).
Approximately 69% of Hughes' 1994 revenues in the Aerospace and Defense
Systems segment were attributable to sales to the U.S. Department of Defense.
While the precise effects on specific Hughes defense-related programs cannot be
known at this time, Hughes expects defense spending, particularly by the U.S.
government, generally to continue to decline in real dollars. In addition,
several of Hughes' large programs for the U.S. government are completed or are
nearing completion, including thermal imaging systems and laser rangefinders
for the U.S. Army's M1A1 Abrams tank and Bradley Fighting Vehicle and the
Maverick and Phoenix missile programs. Hughes believes, however, that it is
38
well positioned to compete in the increasingly technologically oriented, cost-
conscious defense market as was demonstrated by several major contract awards
in 1993 and 1994.
Hughes' business strategy is to strengthen its leadership position in
aerospace and defense electronics products, systems and services through
continued emphasis on technological advances, operational efficiencies, cost
reduction and competitiveness. Due to its technological capabilities and the
volume of its products and systems in operation around the world, Hughes
believes that it can capitalize on the opportunities presented by the
continuing trend toward upgrading and retrofitting electronic systems as a
cost-effective alternative to developing new strategic weapons platforms.
Hughes also intends to continue its strategy of reducing its vulnerability to
reductions in U.S. defense spending by diversifying its customer base and
product line, with emphasis on international markets and non-defense government
agencies. In addition to sales to the U.S. Department of Defense, Hughes
provides products and services to NASA and other U.S. government agencies for a
variety of space, aerospace, civic and other purposes. By building on its
expertise and experience in developing and manufacturing defense electronics
systems and providing related services, Hughes is seeking to expand its non-
defense businesses in this segment. For example, Hughes applied the technology
and expertise from its air defense systems in developing its civilian air
traffic control systems business and is exploring non-defense opportunities for
its information systems business unit. Hughes is also seeking to expand its
business internationally. In support of these strategies, Hughes intends, where
appropriate, to enter into strategic alliances and partnering arrangements and
to make strategic acquisitions and divestitures such as its 1992 acquisition of
the missile systems business of General Dynamics and its 1995 acquisition of
the training systems and services business of CAE-Link.
Hughes believes that its reorganization of the Aerospace and Defense Systems
segment effective for 1995 will enhance its ability to compete in a more cost
efficient manner. Under this reorganization, Hughes expects to have reduced
Aerospace and Defense Systems headcount by approximately 4,400 employees
(excluding the effects of the CAE-Link acquisition) by the end of 1995 and
plans to continue pursuing further cost reduction initiatives in the areas of
headcount, facilities utilization, and materials and supplies purchasing.
Hughes also seeks to diversify both its product line and its customer base
with respect to its sales to the U.S. Department of Defense, consistent with
its strategy of reducing Hughes' vulnerability to U.S. defense spending cuts.
By positioning itself as a leading developer and producer of a variety of
tactical programs and as a subcontractor for certain types of subsystems for
strategic programs, Hughes participates in major segments of the defense market
while reducing the impact of specific program cancellations. Tactical programs,
such as airborne radar systems and the AMRAAM and TOW missile programs,
typically involve the large-scale production of expendable products or
electronics systems which are later upgraded. Hughes provides subsystems for a
variety of strategic programs in which its technological capabilities may offer
it a competitive advantage. For example, Hughes is developing subsystems for a
variety of Ballistic Missile Defense ("BMD") programs. Hughes' strategy also
includes diversifying its customer base. In 1994, no single branch of the U.S.
Armed Forces accounted for more than 22% of Hughes' Aerospace and Defense
Systems segment revenues. See also "Business of Hughes--General--United States
Government Contracts."
39
Hughes currently divides its Aerospace and Defense Systems segment into four
principal business units: weapons systems, information systems, radar and
communications systems and electro-optical systems. The following table sets
forth the revenues of each of these business units for each of the last three
years.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Weapons Systems..................................... $2,605 $2,949 $2,397
Information Systems................................. 1,343 1,190 1,070
Radar and Communications Systems.................... 1,262 1,308 1,314
Electro-Optical Systems............................. 814 1,025 1,046
------ ------ ------
Total........................................... $6,024 $6,472 $5,827
====== ====== ======
WEAPONS SYSTEMS
Hughes' weapons systems business consists of its missile systems, naval and
maritime systems, and Delco Systems Operations businesses. The principal
products of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Missile Systems................ Tactical guided missiles (including air-to-
air, air-to-surface, surface-to-surface and
surface-to-air missiles), guidance and
control systems, sensor systems and missile
launchers.
Naval and Maritime Systems..... Torpedoes, sonar and other acoustics
systems, ship defense and display systems,
and underwater surveillance systems.
Delco Systems Operations....... Turret systems for light-armored vehicles
and inertial systems.
Missile Systems
Hughes develops and produces tactical guided missiles, guidance and control
systems, sensor systems and missile launchers. With its air-to-air, air-to-
surface, surface-to-surface and surface-to-air missile products, Hughes
participates in all portions of the missile systems market and believes it is a
leader in the missile systems business. Approximately 69% of Hughes' 1994
weapons systems revenues were generated by its missile systems business.
In 1992, Hughes acquired the missile business of General Dynamics, which
solidified Hughes' position in this market, particularly its surface-to-air
capabilities, and expanded Hughes' customer base (particularly the U.S. Navy).
In 1994, Hughes completed a consolidation of its missile systems business
(including the operations acquired from General Dynamics), including the
consolidation of five major production plants to a single location and the
consolidation of other production and engineering and administrative
facilities. In total, through 1994, 5.8 million square feet of space was
eliminated and headcount was reduced from approximately 13,500 to 7,900.
Hughes has been a long-time supplier and leader in air-to-air missiles, such
as the Phoenix used on the F-14 fighter and the Advanced Medium Range Air-to-
Air Missile ("AMRAAM") developed by Hughes, which has become a primary weapon
system on front-line fighter aircraft for the U.S. Air Force and the U.S. Navy.
The U.S. Department of Defense has approved Hughes for full-scale production of
AMRAAMs, and Hughes is currently in production as one of two producers. AMRAAMs
have been selected for use on fighter aircraft operated by Norway, Korea, the
United Kingdom and Turkey and Hughes believes there continues to be a
significant international market for AMRAAMs. Hughes is also one of two
producers of Sparrow air-to-air missiles for the U.S. Air Force. In 1994,
Hughes was awarded a sole source contract for the production of the Tomahawk
Cruise Missile and development of the next version of Tomahawk. Such award is
being protested by another bidder, although Hughes believes such protest is
without merit. Hughes is also one of two companies awarded a demonstration and
validation contract by the U.S. Navy and U.S. Air Force to design and develop
the AIM-9X, a successor to the Sidewinder air-to-air missile.
40
Hughes also has been a significant developer and producer of air-to-surface
and surface-to-surface missiles. In 1994, Hughes resumed production for foreign
countries of Maverick air-to-surface missiles, which were used effectively
during Operation Desert Storm. In 1994, Hughes received orders totalling
approximately $115 million from the U.S. Army and Canada for 7,296 tube-
launched, optically-tracked, wire guided ("TOW") anti-tank missiles. Hughes
believes opportunities exist for continued sales to foreign governments of
Maverick and TOW missiles.
Hughes believes surface-to-air missiles, with their defensive capabilities,
offer the greatest opportunity for growth in its missile systems business. In
1994, Hughes delivered the first missiles for the Norwegian Advanced Surface-
to-Air Missile Systems ("NASAMS"), an air defense system that uses the AMRAAM
as an anti-aircraft/helicopter missile. Hughes is participating in the
Lightweight Exo-Atmospheric Projectile ("LEAP") and the Exo-Atmospheric Kill
Vehicle ("EKV") programs currently under development as part of BMD. Hughes is
currently one of two producers of the Standard Missile, a surface-to-air
missile designed to provide area defense against aircraft and anti-ship
missiles, and in 1994 received related orders totalling $209 million.
Hughes is currently the sole source producer for the U.S. Army of the Stinger
surface-to-air anti-aircraft missile, receiving in 1994 orders totalling $76
million for missile and launcher production, engineering services, retrofits
and development work. Hughes is currently the sole source producer of the U.S.
Navy's Phalanx close-in weapon system, receiving $134 million of orders in 1994
for production of systems and upgrade kits, engineering services and
development work. Hughes is a primary producer of the Rolling Airframe Missile,
a surface-to-air weapon providing self-defense against anti-ship missiles, and
related launcher systems in cooperation with the German government, receiving
in 1994 orders totalling $189 million.
Naval and Maritime Systems
Hughes' naval and maritime systems business includes torpedoes, sonar and
other acoustics systems, support team equipment and display systems,
principally for the U.S. Navy. Hughes also produces ship defense systems such
as the Mk23 Target Acquisition System, an advanced radar system which permits
ships to detect low-flying, high speed missiles and aircraft. For over twenty
years, Hughes has been involved in supporting the U.S. Navy's Surveillance
Towed Array Sensor Segment ("SURTASS") system, a passive underwater
surveillance sensing system that utilizes an acoustic sensor array towed from a
dedicated surface ship to acquire data. Since 1992, Hughes has participated in
the U.S. Navy's helicopter-borne Airborne Low Frequency Sonar ("ALFS") program.
Production for such program is currently scheduled through late 1996 and Hughes
believes technology developed through such participation presents opportunities
for international sales.
Delco Systems Operations
Hughes is a leader in supplying turret systems for light-armored vehicles to
the U.S. military and supplies a variety of international customers as well.
Hughes also develops and produces inertial systems such as the 30 mm
hemispherical resonator and the HRG-based Space Inertial Reference Unit.
41
INFORMATION SYSTEMS
Hughes' information systems business consists of its command and control
systems; information systems; training and simulation systems; scientific,
engineering and technical services; and air traffic control systems businesses.
The principal products and services of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Command and Control Systems..... Complex military command and control
systems for air defense systems.
Information Systems............. Complex information systems and related
support services principally for the U.S.
government for defense, intelligence,
scientific and other purposes and for
commercial customers.
Training Systems and Services... Training systems (including simulators)
and services for the U.S. government, NASA
and industrial customers.
Scientific, Engineering and
Technical Services............. Support services, including training,
testing, maintenance and logistics.
Air Traffic Control Systems..... Full range of civilian air traffic control
systems. Integrated systems for
information and operations management for
airports.
Command and Control Systems
Hughes' radar and large-scale system software capabilities make it a world
leader in air defense networks, with approximately 80% of the worldwide air
defense market (excluding the Commonwealth of Independent States and China).
Approximately 32% of Hughes' 1994 information systems revenues were generated
by its command and control systems business.
Hughes' air defense systems utilize modular software to integrate large
amounts of data from a variety of sensors, rapidly process the data using
proprietary algorithms, and then communicate information to decision makers in
command and control centers on a real-time basis. As of March 1, 1995, Hughes'
systems were deployed in the United States and over 20 other nations worldwide.
In 1991, Hughes was awarded an $837 million contract to design, develop and
implement an air defense system for Saudi Arabia called Peace Shield and, in
1994, Hughes was awarded a major contract to update the software for Peace
Shield. Hughes is also currently under contract to design, develop and
implement air defense systems for Egypt, Iceland, Kuwait, NATO and Taiwan.
Information Systems
Hughes has expertise in processing large quantities of data in real time,
storing data in secure data bases accessible to geographically distributed
users and handling the requirements of complex communications networks.
Approximately 27% of Hughes' 1994 information systems revenues were generated
by its information systems business unit.
42
For the U.S. government, Hughes has developed the Command, Control,
Communications and Intelligence ("C/3/I") system and support for classified
military requirements as well as mission and sensor data processing for
national security applications. In addition, Hughes provides systems
engineering services to the U.S. Defense Information Systems Agency. Hughes
also provides scientific and engineering services for NASA and the National
Oceanic and Atmospheric Administration such as Mission to Planet Earth and
other planetary and astrophysical research. In 1993, Hughes was awarded a
contract currently valued at approximately $800 million by NASA to develop the
Earth Observing System Data Information Systems ("EOSDIS") Core System. Hughes
also has developed law enforcement applications for the U.S. Immigration and
Naturalization Services and is currently pursuing opportunities in information
technology for the federal government in health care and other non-defense
areas.
Training Systems and Services
Hughes has been a pioneer, and continues to be a leader in, the field of
advanced training systems, services and equipment (including simulators) for a
variety of military requirements. Hughes believes that, with its February 1995
acquisition of substantially all of the assets of CAE-Link (for a purchase
price of approximately $155 million), it is a leading supplier of training
systems and services to the U.S. Department of Defense. Hughes also provides
training systems and services for NASA and industrial customers.
For military applications, Hughes has focused its resources on opportunities
that permit it to take advantage of ongoing Hughes and other similar defense
programs, such as training programs for the B-2, F/A-18, F-16 and C-141
aircraft, and is well positioned to provide combined arms tactics training for
the U.S. Army and the U.S. Navy. Hughes' flight training systems include
sophisticated simulators in which pilots practice combat tactics as well as
emergency procedures and standard maneuvers. The flexible software of these
simulators can be adapted so that pilots can also train for specific missions.
Hughes' training systems are capable of teaching all phases of operations and
maintenance for aircraft as diverse as the F-16 and F/A-18 fighters and the C-
141 cargo aircraft. Hughes also designs and produces multi-platform training
equipment for the U.S. Navy. Using Hughes' Anti-Submarine Warfare Tactical
Team Trainers, teams of navy personnel train in coordinating ships, submarines
and aircraft in simulated anti-submarine and fleet defense warfare maneuvers.
Through the acquisition of CAE-Link, Hughes increased its training business
with the U.S. Army and U.S. Air Force and added NASA to its training and
simulation systems customer base.
Hughes also develops equipment, systems and programs for industrial training
and testing applications, including curriculum and coursework and training
delivery and management. In 1994, Hughes was selected by General Motors Europe
to be its single training integrator and to provide various dealer training
programs. Hughes also has advanced training system projects with several
General Motors facilities in the United States. Hughes is exploring training
opportunities for GM in Asia and other areas outside of the United States and
Europe.
Scientific, Engineering and Technical Services
Hughes provides a range of support services, primarily to the U.S.
Department of Defense and other military customers, both through direct
contracts and through support of other Hughes projects. Hughes is a leading
supplier of depot repair facilities and test systems, including those for
electro-optical, radar and display equipment, out-of-production spares and low
volume production items. Hughes also provides a range of support services for
government test and training programs, including installation, operations and
maintenance, as well as software development and system management. In
addition, Hughes is a recognized supplier of logistics management and
information support, ranging from integrated logistics support to providing
documentation and technical information and training support. Finally, Hughes
offers personnel to maintain, modify, and upgrade Hughes products in the
field, as well as operations and support for arms control treaty
implementation and information systems. Hughes is the largest supplier of
demilitarization support to the U.S. government in the former Soviet Union.
43
Air Traffic Control Systems
Hughes has applied its technology and experience in air defense systems to
development of civilian air traffic control systems. Hughes offers a full range
of systems to the air traffic control market, with products that range from
systems that integrate multiple support centers and radar installations for
large countries to systems servicing a single airport tower.
Hughes' air traffic control systems business is primarily international.
Currently, Hughes is working on contracts to modernize and better integrate
Canada's civil and military air traffic control systems. Hughes also is under
contract to provide air traffic control systems in Indonesia, Saudi Arabia,
Switzerland, Belgium, Kuwait, Germany, Russia, Turkey and China. In addition to
air traffic control systems, Hughes also develops integrated automated systems
for airport resource information and operations management requirements. In
1993, Hughes was awarded a program management consultant contract for the new
Hong Kong airport.
RADAR AND COMMUNICATIONS SYSTEMS
Hughes' radar and communications systems consist of its airborne radar,
processors, ground-based radar, communications and electronic warfare
businesses. The principal products of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Airborne Radar.......... Multi-mode fire control, reconnaissance and
surveillance radar and related upgrades for
military aircraft for sale to the U.S. and other
governments. Radar systems for use in customs, law
enforcement, environmental monitoring and military
applications.
Processors.............. Sophisticated processors for use in aerospace and
defense products and systems, including the
advanced Common Integrated Processor.
Ground-Based Radar...... Ground-based radar and short-range air defense
systems.
Communications.......... Command and control systems for gathering,
processing and transmitting large amounts of
information for military uses.
Electronic Warfare...... Systems for the passive detection, tracking and
identification of signals.
Airborne Radar
Hughes is a leading developer and producer of sophisticated airborne radar
systems. Its radar units are deployed by the U.S. military aboard four of its
five front-line fighter aircraft (the F-14, the F-15, the F/A-18 and the AV-8B
Harrier jet), the AC-130U gunship, the U-2R reconnaissance aircraft and the B-2
stealth bomber, as well as by foreign militaries including those of Japan,
Canada, Australia, Spain, Kuwait, Germany, Israel, Finland, Italy, Malaysia,
Switzerland and Saudi Arabia. Approximately 67% of Hughes' 1994 radar and
communications systems revenues were generated by its airborne radar business.
Hughes' strategy is to maintain its leading position in the airborne radar
market through the combination of sales of its existing systems, concentrated
efforts to improve, upgrade and retrofit the airborne radar systems on in-
service aircraft, and expansion of international sales. With more than 3,000
tactical aircraft in operation throughout the world that have the potential for
upgrades and associated software improvements and with its technological
expertise and reputation, Hughes believes that it is well positioned to compete
for the upgrade and retrofit projects which are a significant segment of this
market (particularly during a period when the U.S. Department of Defense's
procurement budget is
44
declining) and for international sales. Consistent with its dual strategies of
upgrading existing systems and pursuing international business, Hughes is
delivering a new generation of radars for F-15s for the Royal Saudi Air Force,
which has ordered 72 of such radars (plus spares). In 1994, Hughes was awarded
contracts to upgrade the radar systems for U.S. Air Force F-15s and Hughes
delivered the first upgraded radar for the U.S. Navy and Marine Corps F/A-18s.
Processors
Hughes is a leading developer and producer of sophisticated processors for a
variety of military products. Hughes is developing the Common Integrated
Processor, an advanced, ultra high-speed modular computer developed for the F-
22 Advanced Tactical Fighter ("ATF"). This processor provides the computing
power for the avionics systems on the ATF. Once commenced, production of the
ATF is projected by the U.S. Air Force to continue into the first quarter of
the next century. Hughes is also the supplier of the mission computer for the
C-17 Globemaster III transport aircraft.
Ground-Based Radar
Hughes supplies a variety of ground-based radar products and short-range air
defense systems. Hughes' ground-based radar products are deployed in the U.S.
Army's Forward Area Air Defense system, the NASAMS, other medium- and short-
range air defense systems and the Firefinder family of weapon-locating radars
in use by the military forces of the United States and 16 other nations.
Communications
Hughes supplies communications products and command and control systems that
can efficiently collect, process and transmit large amounts of information.
Hughes' primary communications product is the Enhanced Position Location
Reporting System ("EPLRS"), a digital position locator and communications
system. This system provides secure tactical data communications, friendly
identification, position reporting and navigation services to the U.S. Army.
Hughes also provides a Position Location Reporting System for the U.S. Marines,
which provides rapid data communications and data on battlefield unit
locations. In addition, Hughes is part of a team awarded a U.S. Army contract
for the Applique program to integrate computer units into tactical military
platforms to replace hand-drawn maps and radio communications with digital
capabilities, enabling enhanced battle command and operational capabilities.
Electronic Warfare
Utilizing technical expertise from its airborne radar systems, Hughes has
established itself in the electronic warfare business with its development of
an advanced special receiver which is expected to become the standard radar
warning receiver for U.S. Navy and Marine Corps tactical aircraft. This
receiver, which provides threat warning information to aircrews, has been
designated as the core system for the U.S. Navy's Integrated Defensive
Electronic Countermeasures system. In 1994, Hughes was awarded a contract to
demonstrate and validate the precision direction finding system for the Manned
Destructive Suppression of Enemy Air Defenses mission of the U.S. Air Force and
two other electronic warfare contracts.
45
ELECTRO-OPTICAL SYSTEMS
Electro-optical systems use advanced sensors to detect radiated energy in the
form of heat or light, high-speed data and signal processors to analyze the
sensor data, and sophisticated communications and display technology to deliver
that information to commanders and other decision makers. Hughes' electro-
optical systems business employs its thermal imaging, laser guidance, infrared
sensors and advanced optics technologies for a variety of tactical applications
and space and strategic applications. Hughes' electro-optical systems business
includes Hughes' Santa Barbara Research Center, which designs and produces
infrared focal plane detectors and civilian space sensors.
The principal products of the electro-optical systems business are as
follows:
PRODUCT DESCRIPTION
------- -----------
Tactical Systems............... Systems for use in military aircraft, tanks
and ground defense systems, including weapon
fire control systems, night and obscured
vision systems and sensors.
Space and Strategic Systems.... Systems for earth monitoring and planetary
exploration and ballistic missile warning,
tracking and guidance systems.
Tactical Systems
Hughes is a leading producer of tactical military laser and thermal electro-
optical systems. Hughes provides night vision systems incorporating its thermal
imaging and laser technologies for aircraft, tanks, armored personnel carriers
and, together with its licensees, has built more than 30,000 tactical laser
rangefinders and more than 20,000 thermal imaging systems. Hughes' laser
rangefinders, which are used on tanks, project an invisible laser beam at a
prospective target, analyze the returned signal and convey target range and
direction information to the tank's weapons control computer. By permitting a
tank crew to see through darkness, smoke and dust, Hughes' thermal imaging
systems extend a tank crew's engagement range and operating maneuverability.
Hughes is a contractor for the U.S. Army's Horizontal Technology Integration
program to provide improved electro-optical sights on armored vehicles. Hughes
has also been selected to become a qualified production source for second
generation thermal imaging target acquisition fire control system upgrades for
the Bradley Fighting Vehicle.
For light-armored vehicles, Hughes produces a high performance fire control
thermal imaging system that is being used in conjunction with fire control and
TOW missile programs and has been installed on a variety of vehicles. For
infantry application, Hughes has developed an infrared thermal weapon sight for
the U.S. Army that is light enough to be used with rifles, machine guns and
shoulder-launched missiles.
Hughes' infrared sensors are also used in sophisticated fire detection and
suppression systems deployed on the M1A1 Abrams tank and Bradley Fighting
Vehicle. Hughes or licensees using technology developed by Hughes have produced
fire control systems and components for most of the United States' battle tanks
and fighting vehicles and for a significant portion of those of other
countries.
Airborne systems being developed by Hughes include an infrared system for the
U.S. Marine Corps V-22 Osprey that incorporates advanced staring focal plane
array technology. Hughes also provides a night targeting system for the AH-1
Cobra attack helicopter, and night vision systems for a variety of other
helicopters in service with the U.S. and other armed forces. Fixed-wing
electro-optical products include the infrared navigation and targeting pods for
the F/A-18 Hornet aircraft.
46
Space and Strategic Systems
Hughes is a leading designer and producer of visible light wavelength and
infrared detector sensors for imaging products deployed on satellites and used
for a variety of earth monitoring, planetary exploration and commercial
purposes. In the area of earth remote sensing for civil space applications,
Hughes has manufactured key instruments for a majority of the imaging weather
satellites launched since the late 1960s and is currently performing on several
major civil earth monitoring contracts.
Hughes' advanced optics technology and products are also applied in systems
for a wide variety of surveillance and scientific purposes and can be used in
adverse environments. Hughes has pioneered the technologies for telescopes that
can maintain high performance at extremely low temperatures and which are
fundamental to space sensors and interceptors used by the U.S. Department of
Defense. In addition, for both tactical and space and strategic applications,
advances in wide field of view reflective optics for land and airborne
applications are permitting increased capability in increasingly smaller
packages by enabling visible, infrared and laser wavelengths to use a single
aperture. Precision machining and diamond turning technology are being used to
enable production of these optics with fewer parts and lower cost.
Hughes is currently developing space-based infrared sensors to detect and
track ballistic missiles in flight, providing data for early warning and
tracking. Hughes is a contractor on the U.S. Air Force's Brilliant Eyes program
and is planning to bid in 1995 on the Space-Based Infrared Systems program.
Hughes also produces guidance electronics for the Trident II submarine-launched
ballistic missile.
TELECOMMUNICATIONS AND SPACE
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of geostationary communications satellites and is the world's
leading supplier of satellite-based private business networks. Hughes also
provides a broad range of satellite-related services and is a leader in the
U.S. direct broadcast satellite market with its programming distribution
service known as DIRECTV, which was introduced in 1994 and is the first high-
powered, all digital direct-to-home television distribution service in North
America. Hughes believes it is a leading manufacturer of communications
satellites and satellite-based electronic equipment for the U.S. government.
Hughes is a vertically integrated supplier of satellites and satellite-based
communications systems and services. It also provides communications equipment
and services in the mobile communications and packet switching markets. Its
equipment and services are applied in, among other things, data, video and
audio transmission, cable and network television distribution, private business
networks, digital cellular communications and direct-to-home satellite
broadcast distribution of television programming. In 1994, the
Telecommunications and Space segment accounted for approximately 18% of Hughes'
revenues and approximately 17% of Hughes' operating profit (excluding purchase
accounting adjustments related to GM's acquisition of HAC).
Hughes seeks to capture more of the value-added benefits of the satellite-
based services market by capitalizing on its technological capabilities, the
size and desirable orbital locations of its satellite fleet, and its management
expertise in satellite operations. Hughes' strategy also includes building on
its technology and experience to develop new applications for its satellite-
based services for governments, businesses and consumers and expanding
international sales for all its businesses. Hughes believes significant
opportunities exist in (i) mobile wireless communications systems and services
based on Hughes' digital satellite and cellular communications technologies;
(ii) fixed wireless telecommunications networks for local and international
telecommunications in areas with deficient communications infrastructures (such
as developing nations); and (iii) direct-to-home satellite-based television
programming distribution outside North America based on Hughes' experience with
its DIRECTV service, especially in areas lacking established alternative
distribution infrastructures (such
47
as developing nations). Hughes' strategy also includes developing new
satellite-based technologies for opportunities such as satellite-based data
communications directly to personal computers and new systems for telephone,
video and data communications. In addition, Hughes seeks to maintain its strong
position in satellite manufacturing and to continue to increase the
profitability of its manufacturing operations through more efficient production
processes.
Hughes has divided its Telecommunications and Space segment into four
principal businesses: satellite construction, satellite ownership and
operation, telecommunications equipment and services, and DIRECTV, Hughes'
direct-to-home satellite programming distribution service for the North
American market. The following table sets forth revenues of the
Telecommunications and Space segment for each of the last three years. Due to
the commencement of the DIRECTV programming and distribution services in 1994,
revenues associated with the DIRECTV service have been included with satellite
ownership and operation revenues.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Satellite Construction.............................. $1,426 $1,288 $1,150
Satellite Ownership and Operation................... 361 354 417
Telecommunications Equipment and Services........... 809 596 415
------ ------ ------
Total........................................... $2,596 $2,238 $1,982
====== ====== ======
SATELLITE CONSTRUCTION
Through Hughes Space and Communications Company ("HSC"), Hughes is a world
leader in the manufacture of geostationary commercial communications
satellites, having built over 40% of the communications satellites now in
commercial service worldwide. Hughes believes that it is a leading manufacturer
of satellites and satellite-based electronic equipment for the U.S. government,
and its satellites and satellite payloads are used for a variety of defense,
NASA and other government space missions.
Since its construction of the world's first geosynchronous communications
satellite in 1963, Hughes has been recognized worldwide as a leader in the
design and manufacture of communications satellites. Since 1990, Hughes has
received approximately 31% of all publicly announced new satellite orders
worldwide. The following table outlines certain publicly announced information
with respect to commercial (non-defense) communications satellites during the
period from 1992 to 1994. Through March 1, 1995, one additional Hughes-built
satellite was placed in service in 1995.
1994 1993 1992
---- ---- ----
Commercial Communications Satellite Launches
Hughes-Built........................................... 10 5 7
Total.................................................. 20 10 19
Commercial Communications Satellites in Service
Hughes-Built........................................... 57 52 47
Total.................................................. 138 127 119
As of March 1, 1995, Hughes has publicly announced outstanding orders to
construct 29 communications satellites for companies (including subsidiaries
and affiliates of Hughes) and government agencies in nine countries, including
orders for 23 of its advanced HS 601 satellites (of which three are commercial
orders for its higher-power models). In February 1995, Hughes received an order
for approximately $482 million to develop NASA's next generation of Tracking,
Data and Relay Satellites ("TDRS"). Such award is being protested by another
bidder, although Hughes believes such protest is without merit. Under the TDRS
contract, Hughes will build three HS 601 satellites (the first of which is
projected for delivery in 1999) and provide related launch and operations
support. As of March 1, 1995, fourteen Hughes-built satellites are scheduled
for launch in the remainder of 1995. Launch schedules are subject to a number
of factors, including construction delays, weather, availability
48
of launch vehicles, launch vehicle problems, and governmental and political
pressures, many of which are beyond the control of Hughes. Launch difficulties
and delays can, in certain circumstances, result in increased costs to Hughes.
Hughes believes that its leadership position in the competitive satellite
manufacturing industry reflects the high quality and reliability of its
satellites, which results from its technological superiority in satellite
design, production and operation. One measure of the reliability of Hughes'
satellites is the duration of their operational service. Since the launch of
Hughes' first satellite in 1963, Hughes' satellites have accumulated over 700
years of in-orbit experience, with channel availability of 99.4% on HS 376, HS
601 and other current generation commercial satellites. Approximately 98% of
Hughes' satellites have remained in service past their originally scheduled
retirement dates. The quality of Hughes' satellites is also evidenced by the
number of repeat customers. Since 1965, approximately one-half of all Hughes'
satellite sales have been made to repeat customers. Since 1990, the U.S. Navy,
as well as private companies and the governments of Brazil and Mexico, have
made follow-on purchases of communications satellites from Hughes.
Hughes' technological capabilities have led to enhancements in the quality of
its satellites, reductions in production and operating costs, and expansion of
its satellite product line, thereby strengthening Hughes' leadership position
and expanding the market for satellites as a whole. For example, Hughes has
developed a family of framework, propulsion and power systems (referred to as
"buses"), which can be replicated at relatively low cost in a variety of
commercial and defense configurations. In addition, Hughes has applied signal
compression and has developed other methods to enhance the efficiency of
transponders. The newest product in this family is the HS 601 bus which offers
substantially higher power levels than those previously achieved. Advancements
in digital electronics, high power amplifiers, antenna implementations and
propulsion systems offer enhanced performance capabilities of Hughes-built
satellites at a relatively lower weight than other satellites. These
advancements are expected to provide a significant competitive advantage for
Hughes as a result of enhanced performance capabilities and because the cost of
launch varies with satellite weight.
In order to enhance its competitive position in both the government and
commercial satellite manufacturing markets, Hughes continues to work to lower
its costs and improve productivity while maintaining its quality standards.
Since 1992, Hughes has improved its satellite manufacturing productivity by
approximately 47% (as measured by satellite sales dollars per employee) and
reduced cycle time from order to delivery for satellite production by
approximately 30%.
SATELLITE OWNERSHIP AND OPERATION
Through Hughes Communications, Inc. ("HCI"), Hughes maintains one of the
world's largest private fleet of communications satellites and offers a broad
range of services in the commercial satellite communications market. Hughes
believes that it is a leader in the markets it serves, including cable
television distribution, broadcast television distribution, private business
networks, news gathering, radio networks, educational systems and video time
sharing.
As of March 1, 1995, HCI operated 15 satellites, consisting of nine used for
cable and broadcast video, voice and data transmission (collectively known as
the Galaxy network), two used for DIRECTV service, three Leasat satellites
operated for the U.S. Navy, and one operated for another communications
company. As of December 31, 1994, approximately 38% of the U.S. commercial-use
transponders in space were on Hughes' satellites in the Galaxy network. The
following table sets forth the number of transponders on the in-orbit
satellites in the Galaxy network as of December 31, 1994, 1993 and 1992 and the
percentage of such transponders committed, in the aggregate, to use by Hughes'
customers during each of 1994, 1993 and 1992.
1994 1993 1992
---- ---- ----
Satellites................................................ 9 10 9
Transponders Available.................................... 235 259 211
Transponders Committed.................................... 89% 68% 69%
49
To meet the expected demand for additional satellite capacity, Hughes is in
production on two new satellites for use in providing a range of satellite-
based services. Delays in the production or successful launch of these
satellites could materially affect the ability of Hughes to deliver services
and benefit from the opportunities it is currently pursuing. Launch schedules
are subject to a number of factors, including construction delays, weather,
availability of launch vehicles, launch vehicle problems, and governmental and
political pressures, many of which are beyond the control of Hughes.
Hughes enjoys strategic advantages in selling and leasing transponders as a
result of the desirable Earth-orbit locations of its geosynchronous
communications satellites, particularly over the continental United States. Key
anchor customers transmitting from Hughes' satellites provide an established
base of viewers with satellite dishes aimed at Hughes' satellites. This
attracts additional customers for Hughes because program originators can access
this base of viewers at relatively lower start-up costs since such prospective
viewers do not need to re-target their satellite dishes. In addition, the
number of satellites owned and operated by Hughes creates competitive
advantages for Hughes through economies of scale in the day-to-day operation
and control of satellites and added flexibility in scheduling and supporting
transponder services provided to customers.
Hughes' business strategy is to capture more of the value-added benefits of
the satellite-based services market by capitalizing on its technological
capabilities, the size and desirable orbital locations of its satellite fleet
and its management expertise in satellite operations. In addition, Hughes seeks
to expand into related markets where it believes that its technologies will
provide it with a sustainable competitive advantage. For example, Hughes is
actively involved in nearly every aspect of providing satellite-based
transponder services to cable television programmers. Most of the space-based
hardware (including the satellites, the transponders and other electronic
components comprising the satellite payloads) and most of the ground-based
control equipment are designed or manufactured by Hughes. Hughes also
distributes cable television programming for HBO, Turner Broadcasting, ESPN,
USA Network and other programmers to local cable companies across the United
States and provides services for news gathering.
Hughes is the largest shareholder of American Mobile Satellite Corporation
("AMSC"), with an equity interest of approximately 27%. AMSC common stock is
publicly traded and other shareholders include Singapore Telecommunications
Ltd., McCaw Cellular Communications, Inc. (a subsidiary of AT&T) and Mtel
Corporation. AMSC has an FCC license to provide a full range of satellite-based
mobile telephone, facsimile and data services in the United States, including
Alaska, Hawaii, Puerto Rico, the Virgin Islands and approximately 200 miles of
coastal waters. AMSC's system is an adjunct to existing cellular
communications, as it operates by filling in the "white spaces" left uncovered
by such systems. AMSC and TMI Communication Company Limited Partnership of
Canada are each purchasing a Hughes HS 601 satellite and another satellite
pursuant to a joint procurement program to provide communication services to
the United States and Canada. AMSC has announced that it expects to commence
providing services in 1995. Currently, AMSC offers SKYCELL(R) Fleet Management
mobile data and position reporting services to the maritime, trucking and rail
industries throughout the United States through leased satellites.
Although Hughes' satellite ownership and operations activities to date have
been focused largely in North America, Hughes' business strategy also includes
application of its U.S. telecommunications industry experience and technology
to international markets. Consistent with this strategy, HCI has entered into a
partnership with three prominent Latin American media companies to introduce
satellite-based direct broadcast entertainment into Latin America through a
service to be known as DIRECTV Latin America(TM). In addition, Hughes is
exploring opportunities in Japan, Europe, the Asia/Pacific region and India to
capitalize further on its experience developed in connection with its DIRECTV
service.
Hughes expects DIRECTV Latin America to commence operation in 1996 using a
Hughes HS 601 satellite currently scheduled for launch in the fourth quarter of
1995. Local suppliers have agreed to
50
provide marketing, sales, distribution, customer service and other
infrastructure services. Hughes, through HCI, has agreed to provide satellite
operation and maintenance services and its partners have agreed to provide
programming. DIRECTV Latin America service is expected to include up to 144
television channels and 60 music channels for customers in Mexico, Central
America, South America and the Caribbean. Hughes estimates that this market
represents the third largest television market in the world, with over 70
million television households, although the number of households which are
potential customers for DIRECTV Latin America service is estimated to be
substantially less. Hughes believes that its scheduled early entry into the
Latin American direct broadcast market coupled with its existing DIRECTV
technology will provide it with a competitive advantage in this market, and
Hughes has a goal of 5 million subscribers by 2005. Hughes does not expect its
participation in providing DIRECTV Latin America service to become profitable
until after 1997. There can be no assurance that any level of subscribers or
profitability to Hughes will be achieved or, if and when achieved, maintained
due to the factors described below in this section, the factors described below
under "DIRECTV" and other factors outside the control of Hughes and its
partners (including economic conditions and volatility in Latin America and
currency and exchange rate risks). To the extent that targeted levels of
subscribers are not achieved or maintained, the timing and amount of revenues
and profitability to Hughes from its participation in providing DIRECTV Latin
America service may be adversely affected.
Hughes is also pursuing the development of an international fixed satellite-
based communication system called Spaceway(TM), which is being designed to
offer affordable access to a variety of interactive, high-speed and high-
quality broad band voice, video, audio and data telecommunications services
through four interconnected regional satellite systems.
Both the DIRECTV Latin America service and the Spaceway system, if and when
operational, will compete with other technologies and systems. See "Business of
Hughes--General--Competition." Delays in the successful production or launch of
the related satellites could materially delay the commencement or expansion of
such services, which could materially affect market acceptance of such services
and the financial results to Hughes. Launch schedules are subject to a number
of factors, including construction delays, weather, availability of launch
vehicles, launch vehicle problems, and governmental and political pressures,
many of which are beyond the control of Hughes. In addition, there can be no
assurance that Hughes will receive the approvals from the U.S. Federal
Communications Commission and other U.S. and foreign governmental agencies that
will be required to launch and operate the satellites for direct broadcast
services and the Spaceway system. For other matters with respect to the DIRECTV
Latin America service, see "DIRECTV" below. The equipment, systems and
technology for the Spaceway system are currently under development and there
can be no assurance that Hughes will be able to offer the presently
contemplated range of services, that the cost of any such services offered will
be attractive to customers or that such services can be successfully
commercialized.
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
Through Hughes Network Systems, Inc. ("HNS"), Hughes provides a broad range
of telecommunications equipment, satellite ground-based equipment and satellite
communications services. With an estimated worldwide market share in excess of
60%, Hughes is the world's leading supplier of satellite-based private business
networks, which are individually designed, owner controlled, interactive,
highly flexible communications systems with the capacity to link thousands of
locations for data exchange, voice communications and videoconferencing. Hughes
also provides shared-hub systems that allow users with more modest
communications needs to share usage of Hughes' satellite
51
ground stations and networks. Hughes is also a leader in wireless telephone
networks and digital cellular mobile systems and believes significant
opportunities exist in utilizing both satellite and digital cellular
technologies to provide fixed wireless telecommunications networks for local
and international telecommunications in areas with deficient communications
infrastructures (particularly developing nations) and to provide mobile
communications systems and services.
Hughes' private business networks utilize its very small aperture terminals
("VSATs"). VSATs are replacing more conventional satellite dishes for many uses
because VSATs, which take advantage of more powerful satellites, are smaller,
less expensive to manufacture and easier to install. As a leading supplier of
VSATs, Hughes has delivered or received orders for more than 100,000 VSATs for
use in the private networks of companies, government agencies, universities and
research institutions. Among these are the more than 9,100 installed in the GM
Pulsat network, which is the world's largest private business network. Since
1987, Hughes has sold private business networks to a variety of customers
worldwide, including Chrysler, Toyota, Chevron, IBM, Wal-Mart, Toys "R" Us,
Jusco (Japan), China Ministry of Posts and Telecommunications and France
Telecom. Sales to international customers are expected to increase,
particularly as government regulation of private ownership of such networks
decreases. As of March 1, 1995, Hughes had sold private networks for use in
over 38 countries in North America, Europe, Asia, Latin America and Africa.
Hughes believes that its technologies and other capabilities position it to
become a leading provider of both ground-based and satellite-based mobile
communications services, which Hughes expects to become an increasingly
important segment of the telecommunications market. Hughes is currently
actively involved in many segments of the mobile communications market, from
the design and manufacture of digital switching and consumer equipment for the
cellular market to the construction and operation of satellites and satellite-
based systems for use on vehicles and aircraft throughout North America and
Japan and on vessels worldwide. For example, Hughes is a leading supplier of
coastal earth stations used by a number of countries to transmit ship-to-shore
telephone signals via the International Maritime Satellite Organization's
("INMARSAT") satellites.
Hughes provides telecommunications equipment for cellular-based wireless
applications. Hughes believes that it has developed a unique and flexible
system that uses common hardware and software modules for multiple wireless
telecommunications applications, including analog and digital mobile cellular,
mobile data, fixed wireless telephony and Personal Communication Services
("PCS"). The advanced GMH 2000(TM) cellular system supports and is compatible
with the U.S. Telecommunications Industry Association ("TIA") analog and Time
Division Multiple Access ("TDMA") digital cellular standards, the Cellular
Digital Packet Data ("CDPD") mobile data standard, the BellCore "PACS" system
proposed as a PCS standard and Hughes' proprietary enhancement to TDMA,
Extended Time Division Multiple Access ("E-TDMA") standard. E-TDMA(R) offers
enhanced signal quality and confidentiality and significantly increased
capacity as compared to conventional analog switching technology. Hughes has a
contract with BellSouth Cellular Corporation to deploy its GMH 2000 dual analog
digital cellular networks for voice and data transmission in more than 50
markets in the southeast United States. GTE Mobilnet has announced that it will
install a Hughes network with CDPD technology in each of 10 markets in 1995.
Hughes believes that significant opportunities exist in providing
communications networks for use in areas with deficient communications
infrastructures (particularly developing nations) because systems utilizing
satellite and digital cellular technologies can generally be installed more
quickly and economically than traditional wire-based telephone systems. Hughes'
systems are capable of providing both local and international
telecommunications services. Hughes' satellite-based private business networks
are well suited for use by businesses and governments seeking improved
communications in countries with less developed communications infrastructures
because such systems can operate independently of existing wire-based switched
telephone systems. Hughes is currently providing services through its Telephony
Earth Station VSAT. Moreover, Hughes believes that its digital cellular
technology (including E-TDMA) offers an alternative infrastructure for
telephone systems, particularly in
52
areas where installation of wire- or cable-based systems is not cost-effective.
Hughes has signed contracts for major telephone infrastructures in Jakarta,
Indonesia; Prague, Czech Republic; Blantyre, Malawi; Vladivostok and
Novorosslysk, Russia; and Chengdu and Daqing, China. The Hughes program in
Tatarstan, a Russian republic, for a high capacity fixed wireless telephone
system has been in operation since January 1995. Hughes is discussing with
several other countries and cities the installation of similar systems to
provide and upgrade basic telephone service.
In 1996 HNS expects to begin providing subscriber equipment for DIRECTV
services. In addition, Hughes is developing DirecPC(TM), a satellite-based
information delivery service that is expected to use small antennas and high-
speed digital transmission to make software, documents, desk-top video, games,
news and other information accessible through personal computers. There can be
no assurance that Hughes will receive the approvals from the U.S. Federal
Communications Commission and other governmental agencies that are required to
be able to provide such service or that such service can be successfully
commercialized.
DIRECTV
Through DIRECTV Enterprises, Inc., Hughes has developed and operates the
first high-powered, all digital direct-to-home television distribution service
in North America, and is a leader in the direct broadcast satellite market in
the United States with its programming distribution service known as DIRECTV.
Introduced in June 1994, DIRECTV service is broadcast from two Hughes HS 601
satellites directly to 18-inch receiving antennae and decoding boxes located in
households in the 48 contiguous states in the United States. Hughes uses 11 of
the 16 transponders on the first satellite and all 16 transponders on the
second satellite for DIRECTV services. The remaining five transponders on the
first satellite have been sold to United States Satellite Broadcasting, Inc.
("USSB") for use in its own programming service. Hughes plans to launch a third
satellite in the second quarter of 1995 to provide additional programming
services and back-up support for its broadcast services. The receiving
equipment for direct-to-home television service, called Digital Satellite
System or DSS(TM), was initially manufactured exclusively by Thomson Consumer
Electronics under the RCA(R) brand name and currently retails for approximately
$699 and $899. Hughes expects Sony to begin supplying DSS equipment in the
second quarter of 1995, and has announced that HNS, Toshiba and Uniden are
expected to commence supplying DSS equipment in 1996. Based on consumer
electronics marketing trends, Hughes anticipates that the prices for DSS
equipment will decline as additional suppliers enter the market.
Both the DIRECTV programming service and DSS equipment are distributed
through consumer electronics stores such as Sears, Circuit City and Best Buy;
satellite television dealers; and an arrangement with the National Rural
Telecommunications Cooperative ("NRTC") whereby the NRTC offers DIRECTV
services to member cooperatives serving approximately seven million households
located primarily in rural areas of the continental United States. Because a
significant number of consumers in rural areas do not have access to cable
television, Hughes believes that direct broadcasting service represents the
most convenient and economical method of providing multi-channel video services
to such consumers. Hughes also believes that distribution through the NRTC is
advantageous since NRTC members already provide utilities such as electric
power and telephone services to consumers within their respective regions.
The DIRECTV entertainment services currently offered to subscribers include
over 150 television channels (including The Disney Channel, ESPN and CNN); an
assortment of pay per view events such as movies, boxing, wrestling, musical
concerts and other similar programs; 28 audio channels of commercial-free, CD-
quality music; professional sports programming consisting of out-of-market
games from the NFL, NBA and NHL and collegiate football sports programming; and
other entertainment services such as Prime Time 24, The Golf Channel, TV Asia,
STARZ! and Playboy TV. Hughes believes that the wide diversity of programming
and the variety of programming packages available to consumers
53
(especially in the areas of sports and movies) will allow DIRECTV to compete
effectively in the market for television entertainment. Future program
offerings may include additional niche or specialized programming, interactive
services and data/information services. In January 1995, Hughes began selling
programming packages to restaurants, bars, office buildings and other
commercial establishments.
As of the beginning of March 1995, Hughes provided DIRECTV programming
services to approximately 425,000 subscribers in the United States. Although
the factors described below make it difficult to predict future subscription
levels for any particular period of time, Hughes currently believes that its
DIRECTV service will become profitable at a subscription level of approximately
3 million subscribers, which it does not expect to achieve until after 1995,
and Hughes has a target of 10 million subscribers in North America by 2000.
Primestar and USSB are the only other direct broadcast service companies
currently in operation in the United States. Other direct broadcast service
companies are expected to commence operation of direct-to-home services in 1996
or 1997. DIRECTV service also competes with cable television, other broadcast
television and other entertainment services, including video rentals and
telephone services. Due to, among other things, the scope of the competition
for direct broadcast entertainment services and the relatively low brand and
concept awareness level that is associated with the introduction of any new
product, there can be no assurance as to the long-term market acceptance of
direct broadcast services. The technology for the DIRECTV service is based, in
part, on Hughes' satellite and satellite-based services experience and, in
part, on the expertise of Thomson Consumer Electronics (which markets products
under both the RCA and GE brand names) for the DSS equipment. Because Hughes
has limited experience in marketing directly to consumers and operating the
related infrastructure and support services, Hughes has outsourced many of the
significant facets of such operations to vendors experienced in the respective
fields. Given that DIRECTV service was introduced as recently as June 1994,
Hughes and others have only limited operating experience and such experience is
based on current subscription levels. Based on the foregoing and other factors
outside the control of Hughes, such as general economic conditions, there can
be no assurance that any level of subscription or profitability will be
achieved or, if and when achieved, that any level of subscription or
profitability will be maintained. Failure to reach targeted levels or to
sustain such levels will materially adversely affect the timing and amount of
revenues and profitability to Hughes from its DIRECTV service.
CORPORATE AND OTHER
Hughes operates other businesses in addition to those described above in the
discussions of Hughes' three business segments. These businesses are to be
reported as part of "Corporate and Other" in Hughes' consolidated financial
statements and the revenues of these businesses are not, in the aggregate,
material to Hughes. The most significant of these businesses are Avicom, a
supplier of cabin management, interactive passenger communications and
entertainment systems and related services for the commercial airline market,
and certain portions of the former HIEC. Corporate and Other also includes
other minor business activities and, through 1993, Rediffusion, a supplier of
commercial flight simulators and related systems and services, which Hughes
sold in 1993.
Through Avicom, Hughes is working to develop a complete cabin communications
and entertainment system that integrates its audio distribution technology,
large system processing capability and liquid crystal display technology. This
system is being designed to be fully interactive and allow passengers (through
individual screens at their seats) to watch and listen to individually selected
entertainment programs, request meals and beverages and order duty free and
other merchandise. The interactive feature is not currently meeting all design
and quality requirements and, thus, installation of this portion of systems
under existing sales contracts is being delayed pending completion of a product
improvement program. The operating loss attributed to Corporate and Other in
1994 includes an $83 million operating loss reported by Avicom.
54
BUSINESS OF HUGHES--GENERAL
COMPETITION
Hughes is generally recognized as a leader in automotive electronics,
aerospace and defense systems, and telecommunications and space equipment and
services. Hughes competes on the basis of quality and reliability, price,
responsiveness to customer needs, technical expertise and innovation,
financial and management capability and overall reputation. Competition for
international business is affected by the presence of foreign competitors,
preferences for domestic suppliers and international political and trade
considerations. In order to compete more effectively and to complement its
internal strengths, Hughes has entered into, and expects to continue to enter
into, strategic alliances, partnering arrangements and other joint ventures
and to make strategic acquisitions and divestitures. As a subsidiary of
General Motors, Hughes has access to GM's business network of companies and
government contacts around the world, to a large potential customer base and
to GM's global purchasing power.
In 1992, GM NAO announced its intentions to begin filling its procurement
needs on a global basis. Pursuant to this initiative, GM NAO has aggressively
pursued price reductions from its suppliers and has provided suppliers
worldwide with the opportunity to bid for business customarily sourced with
Hughes. As a result, Hughes has reduced its prices to GM NAO and Hughes
expects prices to continue to decline. Hughes believes that it is has been and
will continue to be able to compete effectively for GM business because of the
quality of its products, its on-going cost reduction efforts and its product
and technological innovations. Hughes also believes that it derives a
competitive advantage from its business practice of placing Delco Electronics
engineers at GM facilities to help integrate Delco Electronics electronic
products into GM's vehicle designs. Hughes believes that its technological
experience from its non-automotive businesses also provides it with a
competitive advantage in developing and implementing new automotive electronic
products. Delco Electronics believes that its cost reduction programs, which
include internal cost improvement programs, business process engineering,
purchases of components from unaffiliated suppliers, synchronous workshops,
supplier cost improvement programs and a global electronics manufacturing
strategy, will provide significant ongoing and sustainable cost savings. In
light of the foregoing, Hughes expects to be able to continue to compete
effectively for GM NAO business as well as international and North American
business other than GM NAO.
In the Aerospace and Defense Systems segment Hughes competes with a variety
of U.S. and international companies for U.S. government and other business.
The U.S. government has historically used multiple supply sources for a single
program to further intensify competition and add to the number of experienced
contractors available for future programs. It is anticipated that the ability
to use multiple sources for production will be limited by declines in U.S.
government defense spending. Hughes believes that its technological
capabilities and the volume of its products and systems in operation around
the world provide it with competitive advantages in the continuing trend
toward upgrading and retrofitting electronic systems on existing weapons
platforms. Hughes believes that its reorganization of the Aerospace and
Defense Systems segment effective in 1995 (including its cost reduction and
consolidation efforts in the areas of headcount, facilities utilization, and
materials and supplies purchasing) will enhance its ability to compete in a
cost efficient manner. See "United States Government Contracts."
Hughes has certain competitive advantages in its telecommunications and
space business. In the construction of satellites, Hughes' family of satellite
bus designs gives it the flexibility to respond to varying customer
requirements, and its relatively lighter weight satellites are less expensive
to launch than are heavier competing models. In the sale and leasing of
satellite transponders, Hughes enjoys advantages from its economies of scale
and its strategic occupation of many of the most desirable North American
Earth-orbit locations for geosynchronous communications satellites. Hughes
also believes that its experience acquired through the development and
operation in North America of the
55
DIRECTV service, and its early entry into the Latin American satellite-based
direct broadcast market, will provide it with competitive advantages in such
markets and in its efforts to expand direct broadcast services to other
markets. See "Telecommunication and Space--DIRECTV."
Notwithstanding the competitive advantages described above, Hughes
participates in markets that involve a high level of competition by other
companies that have similar or better financial, technological and personnel
resources as Hughes. In particular, the U.S. government defense market is
becoming increasingly competitive and Hughes expects consolidation within the
industry due to expected real-dollar declines in the U.S. and other defense
budgets. In addition, as Hughes seeks to increase its sales internationally it
will meet an increased level of competition from foreign companies, some of
which may be owned or subsidized by governmental agencies. Hughes'
telecommunications businesses compete with other communications technologies
and systems, such as, with respect to telecommunications systems for fixed and
mobile applications, fiber optics networks, cable systems, wire telephony and
radio-based systems and other satellite-based systems. In addition to existing
and other planned operations of direct-to-home broadcasting services, Hughes'
direct broadcasting service competes and will compete in present and future
telecommunications markets with telephone companies, cable television, other
broadcast television and other entertainment services, including video rentals.
No assurance can be given as to the effect that any such competition may have
on the financial condition or results of operations of Hughes.
UNITED STATES GOVERNMENT CONTRACTS
Hughes acts as a prime contractor or major subcontractor with respect to many
different U.S. government programs. Government acquisition programs typically
follow a life cycle that begins with the research and development stage and
progresses into full-scale production which may continue, with refinements and
improvements, for several years. Because of significant start-up costs, many
programs are not expected to become profitable until well into the full-scale
production phase. Moreover, not all programs are selected for full-scale
production, even when considerable resources have been expended in pre-
production phases. The U.S. government has historically used multiple supply
sources for a single program to further intensify competition and add to the
number of experienced contractors available for future programs. It is
anticipated that the ability to use multiple sources for production will be
limited by declines in U.S. defense spending. See "Aerospace and Defense
Systems."
Hughes' U.S. government business is performed under two general types of
contracts, fixed-price and cost reimbursement. Under certain fixed-price
contracts, Hughes realizes all the benefit or detriment caused by decreased or
increased costs of performing the contract. Under other fixed-price contracts,
Hughes shares with the U.S. government the savings from performing for less
than a specified target cost as well as the cost burden of exceeding the target
cost up to a ceiling price, and carries the entire burden of costs exceeding
the ceiling price. Cost reimbursement contracts provide for reimbursement of
costs, to the extent such costs are reasonable, allocable to the contract and
allowable under applicable regulations, plus payment of a fee. Approximately
62% of Hughes' total sales to the U.S. government in 1994 were pursuant to
fixed-price contracts, and approximately 38% were pursuant to cost
reimbursement contracts. Total Hughes net sales to the U.S. government in 1994
were approximately $5.3 billion and are primarily in the Aerospace and Defense
Systems segment and the Telecommunications and Space segment.
A significant number of Hughes' fixed-price government contracts contain
progress payment provisions under which Hughes may receive payments in advance
of delivery in amounts ranging from over 80% to 100% of cumulative total costs
incurred, with the remainder, including profit, billed upon delivery and
acceptance. Under cost reimbursement contracts, Hughes is periodically
reimbursed for allowable costs and paid a portion of the fee component based on
progress. Under either type of contract, certain costs, including certain
financing, research and development and marketing expenses, are not
reimbursable under currently applicable regulations.
56
A portion of Hughes' contracts with the U.S. government which are the basis
of Hughes' backlog are subject to appropriations decisions subsequent to award.
Once awarded, contracts may be contested by other bidders. In addition, Hughes'
contracts with the U.S. government are subject to termination by the U.S.
government either for its convenience or for default by Hughes. The costs
recovered for terminations for convenience may not fully reimburse Hughes, and
the profit or fee received by Hughes may be lower than that which it had
expected for the portion of the contract performed. In cases of termination for
default, normal contract remedies generally apply. In addition, the U.S.
government has broad discretion to suspend or debar contractors from engaging
in new government business, including discretion as to the period of suspension
or debarment. A contractor may be debarred based on a conviction or civil
judgment involving certain offenses, including fraud in connection with
obtaining or performing a public contract (or subcontract thereunder), and may
be suspended if indicted for such an offense or if there is other adequate
evidence that such an offense has been committed. Like other government
contractors, Hughes is subject to civil and criminal audits and investigations
of its contracting activity.
Sales to the U.S. government may be affected by changes in acquisition
policies, budget considerations, changing concepts of national defense,
spending priorities, and other factors that are outside the control of Hughes.
RESEARCH AND INTELLECTUAL PROPERTY
The ability to generate technological innovations is important to Hughes'
long-term success. The development of new technologies may provide business
opportunities and may result in product improvements which, among other things,
enable the extension of profitable production programs. Research and
development are carried on in each of Hughes' business units in connection with
ongoing product improvement efforts. Hughes Research Laboratories located in
Malibu, California, conducts long-range applied research in the specialized
fields of physics, chemistry, electronics, and information sciences. See
"Business of Hughes--General--United States Government Contracts." In addition,
units of Hughes consult with the research laboratories of General Motors.
Hughes utilizes a large number of patents and trademarks which are held by
General Motors, Hughes or other affiliates. Hughes believes that, in the
aggregate, the rights existing under such patents, trademarks and licenses are
important. Hughes believes, however, that its competitive position is primarily
dependent on research, engineering and production capabilities. Hughes actively
pursues patent and trademark protections for its technological and engineering
innovations, and actively pursues enforcement of its intellectual property
rights.
EMPLOYEES
As of December 31, 1994, Hughes employed approximately 79,000 persons.
Hughes believes that it is one of the world's largest private employers of
engineers and scientists. As of December 31, 1994, approximately 34% of Hughes'
employees had engineering or technical degrees and 18% had advanced degrees.
Hughes has continuing requirements for skilled technical personnel, and
conducts recruiting in a highly competitive environment from a limited pool of
qualified individuals.
As of December 31, 1994, approximately 23% of Hughes' work force in the
United States was represented by labor unions. The principal unions
representing these employees are the United Automobile Workers, which has a
contract with General Motors that expires in September 1996, the Electronic and
Space Technicians Local 1553 of the United Brotherhood of Carpenters and
Joiners, which has a contract with Hughes that expires in October 1998, and the
International Association of Machinists, which has a contract with Hughes that
expires in October 1996. Hughes has not experienced any significant labor
problems in the past five years, and management considers its employee
relations to be good.
57
Hughes has incentive compensation programs that cover officers and other
executives. These programs include, among other things, grants to executives of
shares and options to acquire shares of Class H Common Stock. The value of
shares of Class H Common Stock and options to acquire such shares which may be
awarded under such programs will vary to the extent of any changes in the
market price of Class H Common Stock during holding or vesting periods
applicable to such awards.
MANAGEMENT
The principal executive officers of Hughes include the following:
NAME AGE POSITIONS
---- --- ---------
C. Michael Arm- 56 Chairman and Chief Executive Officer
strong
Michael T. Smith 51 Vice Chairman
Charles H. Noski 42 Senior Vice President and Chief Financial Officer
Executives of Hughes having primary responsibility for business segments
include the following:
NAME AGE BUSINESS
---- --- --------
Gary W. Dickinson 56 Automotive Electronics
Michael T. Smith 51 Aerospace and Defense Systems
Steven D. Dorfman 59 Telecommunications and Space--HSC and HCI
Jack A. Shaw 56 Telecommunications and Space--HNS
Eddy W. Hartenstein 44 Telecommunications and Space--DIRECTV
SELLING STOCKHOLDER
All of the 15,000,000 shares of the Class H Common Stock offered hereby are
being sold by HHMI. HHMI is a tax-exempt medical research organization. As of
the date hereof, HHMI owns 17,503,800 shares or approximately 18.5% of the
Class H Common Stock outstanding (based on the number of shares outstanding on
February 28, 1995). After the completion of this offering, HHMI will own
2,503,800 shares or approximately 2.6% of the Class H Common Stock outstanding
(based on the number of shares outstanding on February 28, 1995).
HHMI acquired its shares of Class H Common Stock in 1985 in connection with
GM's acquisition of HAC from HHMI. HHMI's investment in shares of Class H
Common Stock constitutes its single largest investment. HHMI is selling the
shares of Class H Common Stock offered hereby in order to diversify its
portfolio of investments and in light of the expiration on March 1, 1995 of
transfer restrictions on 15,000,000 of HHMI's shares of Class H Common Stock
under an agreement between General Motors and HHMI dated February 27, 1989, as
amended (the "1989 Class H Agreement"). After the sale of the shares offered
hereby, HHMI's remaining shares of Class H Common Stock would still constitute
one of HHMI's largest equity investments.
This offering is being made pursuant to an agreement entered into on February
15, 1995 between General Motors and HHMI. Under such agreement, General Motors
is entitled to receive the net proceeds of this offering (after reduction for
expenses, including underwriting discounts and commissions) in excess of $37.50
per share. Based on the price for shares of Class H Common Stock to be sold in
this offering, General Motors and HHMI expect a payment of approximately
$ to be made by HHMI to General Motors within 10 business days after the
closing of this offering. Such agreement also provides that HHMI has the right
to cause General Motors to purchase from HHMI, at a price equal to $30 per
share, a number of shares of Class H Common stock equal to 15,000,000 less the
number of shares sold in this offering. Such put right is exercisable by HHMI
on the earlier of the business day after the date of this Prospectus and June
30, 1995, subject to extension in certain
58
circumstances. The put and call rights between General Motors and HHMI arising
under the 1989 Class H Agreement with respect to shares of Class H Common Stock
owned by HHMI have been exercised or expired unexercised. See Note 1 to the
Hughes Consolidated Financial Statements in Appendix B.
Pursuant to its agreement with HHMI, General Motors has agreed to indemnify
HHMI against certain liabilities under the Securities Act.
HHMI has agreed not to offer, sell, contract to sell or otherwise dispose of
any shares of Class H Common Stock or any securities convertible into or
exchangeable for Class H Common Stock for a period of 90 days from the date
hereof without the prior written consent of Goldman, Sachs & Co. and Salomon
Brothers Inc on behalf of the Underwriters. See "Underwriting." Except as set
forth in the preceding sentence, the shares of Class H Common Stock held by
HHMI are not subject to any transfer restrictions.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
This is a general discussion of certain U.S. federal income and estate tax
consequences of the purchase, ownership and disposition of Class H Common Stock
by a "Non-United States Holder." A "Non-United States Holder" is a person or
entity that, for U.S. federal income tax purposes, is a nonresident alien
individual, a foreign corporation, a foreign partnership, or a nonresident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion
does not address all aspects of U.S. federal income and estate taxation that
may be relevant to Non-United States Holders in light of their particular
circumstances (including the direct or indirect ownership of more than 5
percent of the outstanding Class H Common Stock) and does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
The following summary does not constitute, and should not be considered as,
legal or tax advice to prospective investors. Prospective holders should
consult their tax advisers about the particular tax consequences to them of
holding and disposing of Class H Common Stock.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States Holder
of Class H Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
For purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, General Motors ordinarily
will presume that dividends paid to an address in a foreign country are paid to
a resident of such country absent actual knowledge that such presumption is not
warranted. However, under proposed U.S. Treasury regulations which have not yet
been put into effect, to claim the benefits of a tax treaty, a Non-United
States Holder of Class H Common Stock would be required to file certain forms
accompanied by a statement from a competent authority of the treaty country.
Dividends paid to a holder with an address within the United States generally
will not be subject to withholding tax, unless General Motors has actual
knowledge that the holder is a Non-United States Holder. Absent such actual
knowledge, dividends paid to a holder with a U.S. address may be subject to
backup withholding if the holder is not an exempt recipient as defined in
Section 6049(b)(4) of the Code (which includes corporations) and fails to
provide a correct tax identification number and other information to General
Motors.
59
Upon the filing of an Internal Revenue Service Form 4224 with General Motors,
there is no withholding tax on dividends that are effectively connected with
the Non-United States Holder's conduct of a trade or business within the United
States. Instead, the effectively connected dividends are subject to regular
U.S. income tax in the same manner as if the Non-United States Holder were a
U.S. resident. Effectively connected dividends received by a non-United States
corporation may be subject to an additional "branch profits tax" at a rate of
30% (or such lower rate as may be specified by an applicable treaty) of its
effectively connected earnings and profits, subject to certain adjustments.
Generally, General Motors must report to the U.S. Internal Revenue Service
the amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the U.S. Internal Revenue Service
may make its reports available to tax authorities in the recipient's country of
residence.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to U.S. federal
income tax with respect to gain realized on a sale or other disposition of
Class H Common Stock unless (i) the gain is effectively connected with a trade
or business of such holder in the United States or (ii) in the case of certain
Non-United States Holders who are nonresident alien individuals and hold Class
H Common Stock as a capital asset, such individuals are present in the United
States for 183 or more days in the taxable year of the disposition.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
If the proceeds of a disposition of Class H Common Stock are paid over by or
through a U.S. office of a broker, the payment is subject to information
reporting and to backup withholding unless the disposing holder certifies as to
his name, address, and non-United States status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will
not apply to a payment of disposition proceeds if the payment is made outside
the United States through a non-U.S. office of a non-U.S. broker. However, U.S.
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if (A) the payment is
made through an office outside the United States of a broker that is either (i)
a U.S. person, (ii) a foreign person which derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States or (iii) a "controlled foreign corporation" for U.S. federal
income tax purposes and (B) the broker fails to maintain documentary evidence
that the holder is a Non-United States Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-United States Holder who is treated as the owner of or has
made certain lifetime transfers of an interest in Class H Common Stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholder has agreed to sell to the Underwriters named below (the
"Underwriters"), and the Underwriters have severally agreed to purchase from
the Selling Stockholder, the aggregate number of shares of Class H Common Stock
set forth below opposite their respective names.
NUMBER OF
SHARES OF
CLASS H
COMMON
UNDERWRITER STOCK
----------- ----------
Goldman, Sachs & Co............................................
Salomon Brothers Inc...........................................
Cowen & Company................................................
Morgan Stanley & Co. Incorporated..............................
----------
Total...................................................... 15,000,000
==========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Class H Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Class H Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
General Motors and the Selling Stockholder have agreed that, during the
period beginning from the date of this Prospectus and continuing until the date
90 days after the date of this Prospectus, not to offer, sell, contract to sell
or otherwise dispose of any shares of Class H Common Stock or any securities
which are convertible or exchangeable into Class H Common Stock (other than
pursuant to employee benefit plans and under certain other circumstances),
without the written consent of Goldman, Sachs & Co. and Salomon Brothers Inc.
General Motors and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the shares of Class H Common Stock offered hereby will be
passed upon for General Motors by Warren G. Andersen, Attorney, Legal Staff of
General Motors. Certain matters relating to federal income tax considerations
will be passed on by Anton H. Zidansek, Assistant General Tax Counsel, Tax
Staff of General Motors. Mr. Andersen and Mr. Zidansek are the beneficial
owners of shares, including shares subject to options, of $1 2/3 Par Value
Common Stock and Class E Common Stock.
The legality of the shares offered hereby will be passed upon for the
Underwriters by Davis Polk & Wardwell. Davis Polk & Wardwell acts as counsel to
the Executive Compensation Committee of the Board of Directors of General
Motors and has acted as counsel for General Motors and its subsidiaries in
various matters.
61
EXPERTS
The consolidated financial statements and the financial statement schedule
included in the GM 1994 Form 10-K, incorporated by reference herein, have been
audited by Deloitte & Touche LLP (as to financial statements and the financial
statement schedule of General Motors and as to financial statements of Hughes)
and KPMG Peat Marwick LLP (as to financial statements of EDS), independent
auditors, as stated in their respective reports appearing therein, and have
been so incorporated in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
The consolidated financial statements of Hughes as of December 31, 1994 and
1993 and for the three years in the period ended December 31, 1994, included in
Appendix B herein, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing therein, and have been so
included in reliance upon such report given upon the authority of that firm as
experts in accounting and auditing.
62
APPENDIX A
DESCRIPTION OF GENERAL MOTORS CAPITAL STOCK
The authorized capital stock of General Motors, which may be issued upon
resolution of the General Motors Board of Directors (the "Board of Directors"),
consists of 6,000,000 shares of Preferred Stock, without par value, issuable in
series; 100,000,000 shares of Preference Stock, $0.10 par value, issuable in
series; 2,000,000,000 shares of $1 2/3 Par Value Common Stock; 1,000,000,000
shares of Class E Common Stock, $0.10 par value; and 600,000,000 shares of
Class H Common Stock, $0.10 par value. The $1 2/3 Par Value Common Stock, the
Class E Common Stock and the Class H Common Stock are referred to collectively
as the "Common Stock."
On February 28, 1995, the following shares of capital stock of General Motors
were outstanding: 11,075,000 shares of Series B 9 1/8% Preference Stock,
represented by 44,300,000 Depositary Shares; 3,188,060 shares of Series C
Convertible Preference Stock, represented by 31,880,600 Depositary Shares;
3,925,000 shares of Series D 7.92% Preference Stock, represented by 15,700,000
Depositary Shares; 5,750,000 shares of Series G 9 1/2% Preference Stock,
represented by 23,000,000 Depositary Shares; 752,651,957 shares of $1 2/3 Par
Value Common Stock; 94,528,112 shares of Class H Common Stock; and 262,999,707
shares of Class E Common Stock. In addition, 44,881,509 shares of Class E
Common Stock have been reserved for issuance upon conversion of currently
outstanding Series C Convertible Preference Stock.
PREFERRED STOCK
On May 1, 1993, General Motors exercised its option to redeem all outstanding
shares of Preferred Stock--$5.00 Series for $120.00 per share plus accrued
dividends and to redeem all outstanding shares of Preferred Stock--$3.75 Series
for $100.00 per share plus accrued dividends. Consequently, there are currently
no outstanding shares of Preferred Stock and the Board of Directors has no
current intent to issue any Preferred Stock.
The General Motors Certificate of Incorporation authorizes the Board of
Directors to issue shares of Preferred Stock from time to time in distinctly
designated series, and each series of Preferred Stock would rank equally and be
identical in all respects to all other series except as to the dividend rate
and redemption price. Preferred Stock would rank senior to Preference Stock and
Common Stock with respect to payment of dividends and distributions in
liquidation. If any shares of Preferred Stock were issued, no cash dividends
could be paid on any class of Common Stock or any series of Preference Stock if
current assets of General Motors in excess of its current liabilities were less
than $75 per share of outstanding Preferred Stock.
As noted above, the Board of Directors has no current intent to issue
Preferred Stock, but if any shares were issued, they would not be entitled to
vote except that (i) they would vote together with the holders of Common Stock
on the disposition of General Motors' assets as an entirety; (ii) if General
Motors has defaulted in paying dividends on Preferred Stock for six months, the
holders of Preferred Stock, voting as a class, would be entitled to elect one-
quarter of the directors; and (iii) certain mortgaging or pledging of, or the
placing of certain liens upon, General Motors' property would require the
approval of the holders of three-fourths of any outstanding Preferred Stock.
PREFERENCE STOCK
Preference Stock would rank junior to Preferred Stock, if any were
outstanding, and ranks senior to Common Stock with respect to payment of
dividends and distributions in liquidation. Subject to these limitations, the
Board of Directors may from time to time authorize the issuance of shares of
Preference Stock in such series, and having such dividend and liquidation
preferences, voting rights, redemption
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prices, conversion rights, and other terms and provisions as may be contained
in the resolutions of the Board of Directors providing for their issuance.
General Motors currently has outstanding four series of Preference Stock.
Outstanding shares of Series B 9 1/8% Preference Stock are referred to as
"Series B Preference Shares." Outstanding shares of Series C Convertible
Preference Stock are referred to as "Series C Preference Shares." Outstanding
shares of Series D 7.92% Preference Stock are referred to as "Series D
Preference Shares." Outstanding shares of Series G 9.12% Preference Stock are
referred to as "Series G Preference Shares."
Series B 9 1/8% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series B Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series B Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 9 1/8% of the per share stated value
(equivalent to $9.125 per annum per Series B Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date, as fixed by
the Board of Directors. Dividends on the Series B Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
B Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series B Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series B Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series B Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock for any prior dividend payment
period unless there shall have been declared on all outstanding shares of
Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series B Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series B Preference Shares may not be redeemed prior to
January 1, 1999. On or after January 1, 1999, General Motors may, at its
option, on not less than 35 nor more than 60 days' notice, redeem the Series B
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series B Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding
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Series B Preference Shares are to be redeemed, shares to be redeemed will be
selected by General Motors by lot or pro rata or by any other method determined
by General Motors in its sole discretion to be equitable. Holders of Series B
Preference Shares have no right to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series B Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series B Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series B Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series B Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series B Preference Shares as to liquidation
rights, then the holders of the Series B Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series B Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series B
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series B Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series B
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series B Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series B Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series B Preference Shares have been paid.
Series C Convertible Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series C Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series C Preference Shares will be entitled to receive cumulative
cash dividends from the date of original issue, accruing at the annual rate of
$32.50 per share, and no more, payable quarterly for each of the quarters
ending March, June, September and December of each year, payable in arrears on
the first day that is not a legal holiday of each succeeding May, August,
November and February, respectively. Each such dividend will be paid to holders
of record on each record date, which shall be not less than 10 nor more than 50
days preceding the payment date as fixed by the Board of Directors. Dividends
on the Series C Preference Shares, whether or not declared, will be cumulative
from the date of original issuance thereof. The amount of dividends payable for
any period shorter than a full quarterly dividend period will be determined on
the basis of a 360-day year consisting of twelve 30-day months. Accrued but
unpaid dividends will not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are
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declared. Dividends accumulate to the extent they are not paid on the dividend
payment date following the calendar quarter for which they accrue. Accumulated
preferential dividends will not bear interest. Dividends will not be paid on
any class of Common Stock or other stock ranking junior to the Series C
Preference Shares (other than a dividend payable in shares of any class of
Common Stock) and General Motors will not redeem, repurchase or otherwise
acquire any shares of Common Stock or other stock ranking junior to the Series
C Preference Shares (other than a redemption or purchase of shares of Common
Stock made in connection with employee incentive or benefit plans of General
Motors or its subsidiaries), unless the full preferential dividends accumulated
on all outstanding Series C Preference Shares have been paid. Dividends will
not be declared on any series of Preference Stock for any prior dividend
payment period unless there shall have been declared on all outstanding shares
of Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series C Preference Shares are convertible at any time at the
option of the holders thereof into shares of Class E Common Stock at a
conversion price of $35.52 per share of Class E Common Stock (equivalent to a
conversion rate of 14.078 shares of Class E Common Stock for each Series C
Preference Share), subject to adjustment as described below. For purposes of
such conversion, each Series C Preference Share will be valued at $500.00.
Notwithstanding the foregoing, if Series C Preference Shares are called for
redemption by General Motors as provided below, holders of those shares will
not have the right to convert such shares into Class E Common Stock after the
close of business on the effective date of such call for redemption. In order
to prevent dilution of conversion rights, the conversion price will be adjusted
in the event of (i) a dividend in shares of Class E Common Stock paid with
respect to the Class E Common Stock, (ii) the subdivision or combination of the
outstanding shares of Class E Common Stock, (iii) the issuance to holders of
Class E Common Stock of certain rights or warrants to purchase Class E Common
Stock at below market prices, or (iv) the conversion or exchange of all
outstanding shares of Class E Common Stock for any securities of General Motors
by a recapitalization or otherwise.
Redemption. At any time on or after February 19, 1996, General Motors may at
its option call for redemption, on not less than 15 nor more than 60 days'
notice, any or all of the outstanding Series C Preference Shares at the call
price set forth in the following paragraph, plus any accumulated and unpaid
preferential dividends.
The call price per Series C Preference Share shall be as follows, if the
effective date of the redemption occurs during the 12-month period beginning
February 19 of the years indicated, plus in each case accrued and unpaid
dividends on such shares to and including the effective date: 1996-- $519.50;
1997--$516.25; 1998--$513.00; 1999--$509.75; 2000--$506.50; 2001--$503.25; 2002
and thereafter--$500.00. General Motors may pay the call price in cash, in
shares of $1 2/3 Par Value Common Stock, or in a specified combination thereof.
If fewer than all outstanding Series C Preference Shares are called by
General Motors, the shares to be so called shall be selected by lot or pro rata
or by any other method determined by General Motors in its sole discretion to
be equitable. Holders of Series C Preference Shares have no right to require
redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
after the holders of Preferred Stock, if any were outstanding, receive the full
preferential amounts to which they are entitled and before any distribution to
holders of Common Stock, the holders of Series C Preference Shares, together
with holders of all other currently outstanding shares of Preference Stock,
will be entitled to the respective liquidation preferences described below.
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The holders of Series C Preference Shares shall be entitled to receive for
each share $500.00 plus an amount equal to all dividends accrued and unpaid
thereon to the date of final distribution to such holders, and no more. If
there are insufficient assets to permit full payment to holders of the Series C
Preference Shares and the holders of any other series of Preference Stock which
is on parity with the Series C Preference Shares as to liquidation rights, then
the holders of the Series C Preference Shares and such other shares shall be
paid ratably in proportion to the full distributable amounts to which holders
of all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
Voting. The Series C Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series C
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding shares of such series, and (ii) in the event
General Motors fails to pay preferential dividends on the Series C Preference
Shares in full for any six quarterly dividend payment periods, whether or not
consecutive, and all such dividends remain unpaid (a "Preferential Dividend
Default"), or as required by law. In the event of a Preferential Dividend
Default, the number of directors of General Motors will be increased by two and
the holders of the outstanding Series C Preference Shares, voting together as a
class with all other series of Preference Stock then entitled to vote on the
election of directors, will be entitled to elect such two additional directors
until the full dividends accumulated on all outstanding Series C Preference
Shares are paid.
Series D 7.92% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series D Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series D Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 7.92% of the per share stated value
(equivalent to $7.92 per annum per Series D Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date, as fixed by
the Board of Directors. Dividends on the Series D Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
D Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series D Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series D Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series D Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock
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for any prior dividend payment period unless there shall have been declared on
all outstanding shares of Preference Stock ranking on a parity with such
series, in respect of all dividend payment periods of such parity stock
terminating with or before such prior dividend payment period, like
proportionate dividends determined ratably in proportion to the respective
preferential dividends accumulated to date on such series and the dividends
accumulated on all such outstanding parity Preference Stock.
Conversion. The Series D Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series D Preference Shares may not be redeemed prior to
August 1, 1999. On or after August 1, 1999, General Motors may, at its option,
on not less than 35 nor more than 60 days' notice, redeem the Series D
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series D Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding Series D Preference Shares are to be
redeemed, shares to be redeemed will be selected by General Motors by lot or
pro rata or by any other method determined by General Motors in its sole
discretion to be equitable. Holders of Series D Preference Shares have no right
to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series D Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series D Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series D Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series D Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series D Preference Shares as to liquidation
rights, then the holders of the Series D Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series D Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preference or special rights of the Series D
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series D Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series D
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series D Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series D Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series D Preference Shares have been paid.
Series G 9.12% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series G Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
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Holders of Series G Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 9.12% of the per share stated value
(equivalent to $9.12 per annum per Series G Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date as fixed by
the Board of Directors. Dividends on the Series G Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
G Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series G Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series G Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series G Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock for any prior dividend payment
period unless there shall have been declared on all outstanding shares of
Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series G Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series G Preference Shares may not be redeemed prior to
January 1, 2001. On or after January 1, 2001, General Motors may, at its
option, on not less than 35 nor more than 60 days' notice, redeem the Series G
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series G Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding Series G Preference Shares are to be
redeemed, shares to be redeemed will be selected by General Motors by lot or
pro rata or by any other method determined by General Motors in its sole
discretion to be equitable. Holders of Series G Preference Shares have no right
to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series G Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series G Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series G Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series G Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series G Preference Shares as to liquidation
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rights, then the holders of the Series G Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series G Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series G
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series G Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series G
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series G Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series G Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series G Preference Shares have been paid.
COMMON STOCK
General Motors has three classes of common stock: $1 2/3 Par Value Common
Stock, Class E Common Stock and Class H Common Stock.
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, and Preference Stock, dividends may be paid in cash or
otherwise, when, as and if declared by the Board of Directors, on the $1 2/3
Par Value Common Stock, the Class E Common Stock and the Class H Common Stock
out of the assets of General Motors legally available therefor as provided
below.
Dividends on the $1 2/3 Par Value Common Stock may be declared and paid only
to the extent of the assets of General Motors legally available therefor,
reduced by the amount available for dividends on the Class E Common Stock and
the Class H Common Stock. Dividends paid on the $1 2/3 Par Value Common Stock
and adjustments to surplus arising from the repurchase of shares of $1 2/3 Par
Value Common Stock or other appropriate circumstances will be charged to the
amount available for payment of dividends on $1 2/3 Par Value Common Stock.
General Motors' policy is to distribute dividends on the $1 2/3 Par Value
Common Stock based on the outlook and indicated capital needs of General
Motors' business. At the November 2, 1992 meeting of the General Motors Board
of Directors, the quarterly dividend on the $1 2/3 Par Value Common Stock was
reduced from $0.40 per share to $0.20 per share to conserve cash and strengthen
GM's competitive position. On February 4, 1991, the General Motors Board of
Directors had reduced the quarterly dividend to $0.40 per share from $0.75 per
share of $1 2/3 Par Value Common Stock.
Dividends on Class E Common Stock may be declared and paid out of assets of
General Motors legally available therefor only to the extent of the sum of (i)
the paid in surplus attributable to Class E Common Stock plus (ii) the
Available Separate Consolidated Net Income of EDS earned after General Motors'
acquisition of EDS. The Available Separate Consolidated Net Income of EDS for
each quarterly accounting period is equal to (x) the separate consolidated net
income of EDS for that period, determined in accordance with generally accepted
accounting principles (without giving effect to any adjustment which would
result from accounting for the acquisition of EDS using the purchase method)
multiplied by (y) a fraction, the numerator of which is a number equal to the
weighted average number of shares of the Class E Common Stock outstanding
during that period and the denominator of which was 481.7 million for the
fourth quarter of 1994; provided that such fraction shall never be greater than
one. The denominator shall be adjusted from time to time as deemed appropriate
by the Board of
A-8
Directors (i) to reflect subdivisions and combinations of the Class E Common
Stock and stock dividends payable in shares of Class E Common Stock to holders
of Class E Common Stock, (ii) to reflect the fair market value of contributions
of cash or property by General Motors or its subsidiaries to EDS or its
subsidiaries and to reflect such contributions or contributions of General
Motors capital stock by General Motors to, or for the benefit of, employees of
EDS or its subsidiaries in connection with employee benefit plans or
arrangements and (iii) to reflect payments by EDS to General Motors of amounts
applied to the repurchase by General Motors of shares of Class E Common Stock
and purchases by EDS of shares of Class E Common Stock. The Board of Directors
has determined the denominator will be automatically adjusted at the end of
each quarter to reflect on a weighted-average basis the number of shares of
Class E Common Stock acquired or sold by EDS during such quarter. For all
purposes, determination of the Available Separate Consolidated Net Income of
EDS will be in the sole discretion of the Board of Directors, subject to
criteria set forth in GM's Certificate of Incorporation.
Under the current dividend policy as adopted by the General Motors Board of
Directors, the annual per share dividends on the Class E Common Stock, when, as
and if declared by the Board of Directors in its sole discretion, will equal
approximately 30% of the Available Separate Consolidated Net Income of EDS for
the preceding year. Under the current dividend policy, the quarterly dividend
on the Class E Common Stock for 1994 was $0.12 per share. In February 1995, the
Board of Directors increased the quarterly dividend on Class E Common Stock
from $0.12 per share to $0.13 per share. Although such dividend policy is
subject to change in the sole discretion of the General Motors Board of
Directors, it has no present intention of doing so. However, it reserves the
right to reconsider this policy from time to time and to increase or decrease
the dividends paid on the Class E Common Stock in light of the earnings and
financial position of EDS, General Motors' consolidated financial position,
including liquidity, and other factors. The Capital Stock Committee of the
Board of Directors is responsible for reviewing any dividend policy which may
have differing effects on holders of the three classes of General Motors common
stock.
The number of shares of common stock of EDS issued and outstanding, all of
which shares are owned by General Motors through a wholly owned subsidiary, is
adjusted from time to time so as to remain equal to the denominator of the
fraction described above. It is the policy of the Board of Directors of EDS to
pay quarterly dividends on such shares in a per share amount equal to the
dividends per share paid by General Motors with respect to the Class E Common
Stock. EDS makes no payments to General Motors or the holder of EDS common
stock with respect to dividend payments by General Motors on the Series C
Preference Shares.
Dividends on Class H Common Stock may be declared and paid out of assets of
General Motors legally available therefor only to the extent of the sum of (i)
the paid in surplus of General Motors attributable to Class H Common Stock plus
(ii) the Available Separate Consolidated Net Income of Hughes earned after
December 31, 1985, the date that General Motors acquired HAC. The Available
Separate Consolidated Net Income of Hughes for each quarterly accounting period
is equal to (x) the separate consolidated net income of Hughes for that period,
determined in accordance with generally accepted accounting principles (without
giving effect to any adjustment which would result from accounting for GM's
acquisition of HAC using the purchase method) multiplied by (y) a fraction, the
numerator of which is a number equal to the weighted average number of shares
of Class H Common Stock outstanding during that period and the denominator of
which was 399.9 million for the fourth quarter of 1994; provided that such
fraction shall never be greater than one. The denominator shall be adjusted
from time to time as deemed appropriate by the General Motors Board of
Directors under circumstances that are generally similar to those which would
give rise to an adjustment of the denominator for the Class E Common Stock, as
described above. For all purposes, determination of the Available Separate
Consolidated Net Income of Hughes will be in the sole discretion of the General
Motors Board of Directors, subject to criteria set forth in GM's Certificate of
Incorporation.
Under the current dividend policy as adopted by the General Motors Board of
Directors, the annual per share dividends on the Class H Common Stock, when, as
and if declared by the Board of Directors
A-9
in its sole discretion, will equal approximately 35% of the Available Separate
Consolidated Net Income of Hughes for the preceding year. The dividends paid on
the Class H Common Stock during 1994, 1993 and 1992 exceeded an annual rate
based on 35% of the Available Separate Consolidated Net Income of Hughes for
the preceding year (excluding the effect of a $749.4 million after-tax special
Hughes restructuring charge recorded in 1992). The quarterly dividend on the
Class H Common Stock for 1994 was $0.20 per share and for 1993 and 1992 was
$0.18 per share. In February 1995, the Board of Directors increased the
quarterly dividend on Class H Common Stock from $0.20 per share to $0.23 per
share (which is based on an annual rate of approximately 35% of the Available
Separate Consolidated Net Income of Hughes for 1994). Although such dividend
policy is subject to change in the sole discretion of the Board of Directors,
it has no present intention of doing so. However, it reserves the right to
reconsider this policy from time to time and to increase or decrease the
dividends paid on the Class H Common Stock in light of the earnings and
consolidated financial position of Hughes, General Motors' consolidated
financial position, including liquidity, and other factors. The Capital Stock
Committee of the Board of Directors is responsible for reviewing any dividend
policy which may have differing effects on holders of the three classes of
General Motors common stock.
The number of shares of common stock of Hughes issued and outstanding as of
December 31, 1994 was 1,000, all of which shares are owned by General Motors.
It is the policy of the Board of Directors of Hughes to pay quarterly dividends
to General Motors on such shares in an aggregate amount equal to the dividend
per share paid by General Motors with respect to the Class H Common Stock
multiplied by the denominator used to determine the Available Separate
Consolidated Net Income of Hughes.
Subject to the foregoing, the Board of Directors may declare dividends
payable exclusively to the holders of $1 2/3 Par Value Common Stock, payable
exclusively to the holders of Class H Common Stock, payable exclusively to the
holders of Class E Common Stock, or payable to the holders of any two or more
of such classes in equal or unequal amounts, notwithstanding the respective
amounts of surplus available for payment of dividends on each class, the
respective voting and liquidation rights of each class, the amount of any prior
dividends declared on each class, or any other factor.
Voting. Under the General Motors Certificate of Incorporation and subject to
adjustment as described below, holders of $1 2/3 Par Value Common Stock may
cast one vote per share on all matters submitted to General Motors'
stockholders for a vote, holders of Class E Common Stock may cast one-eighth of
a vote per share on all such matters, and holders of Class H Common Stock may
cast one-half of a vote per share on all such matters. Holders of $1 2/3 Par
Value Common Stock, Class E Common Stock and Class H Common Stock will vote
together as a single class on all matters, except that (i) any amendment to the
Certificate of Incorporation which adversely affects the rights, powers or
privileges of any class must also be approved by the holders of that class
voting separately as a class; (ii) any increase in the number of authorized
shares of Class E Common Stock must be approved by both (A) the holders of a
majority of $1 2/3 Par Value Common Stock, Class E Common Stock and Class H
Common Stock voting together as a single class and (B) the holders of a
majority of Class E Common Stock voting separately as a class; and (iii) any
increase in the number of authorized shares of Class H Common Stock must be
approved by both (A) the holders of a majority of $1 2/3 Par Value Common
Stock, Class E Common Stock and Class H Common Stock voting together as a
single class and (B) the holders of a majority of Class H Common Stock voting
separately as a class.
Recapitalization by Exchange of Stock. The Board of Directors, in its sole
discretion, may recapitalize General Motors by exchanging all of the
outstanding shares of Class E Common Stock for shares of $1 2/3 Par Value
Common Stock at the Exchange Rate (as defined below). However, the Board of
Directors may effect such an exchange only if, during each of the five full
fiscal years preceding the exchange, the aggregate cash dividends on the Class
E Common Stock have been no less than the product of the Payout Ratio (as
defined below) for such year multiplied by the Available Separate
A-10
Consolidated Net Income of EDS for the prior fiscal year. If General Motors
sells, transfers, assigns or otherwise disposes of the business of EDS
substantially as an entirety to a person, entity or group of which General
Motors is not a majority owner, all of the outstanding shares of Class E Common
Stock will automatically be exchanged for shares of $1 2/3 Par Value Common
Stock at the Exchange Rate.
At any time after December 31, 1995, the Board of Directors, in its sole
discretion, may recapitalize General Motors by exchanging all of the
outstanding shares of Class H Common Stock for shares of $1 2/3 Par Value
Common Stock at the Exchange Rate. However, the Board of Directors may effect
such an exchange only if, during each of the five full fiscal years preceding
the exchange, the aggregate cash dividends on the Class H Common Stock have
been no less than the product of the Payout Ratio for such year multiplied by
the Available Separate Consolidated Net Income of Hughes for the prior fiscal
year. If General Motors sells, transfers, assigns or otherwise disposes of
substantially all of the business of HAC, its subsidiaries and successors or of
substantially all of the other business of Hughes to a person, entity or group
of which General Motors is not a majority owner, all of the outstanding shares
of Class H Common Stock will automatically be exchanged for shares of $1 2/3
Par Value Common Stock at the Exchange Rate.
The "Payout Ratio" equals the lesser of (A) 0.25 or (B) the quotient of (x)
the total cash dividends paid on $1 2/3 Par Value Common Stock for such fiscal
year, divided by (y) the net income of General Motors for such fiscal year,
minus the Available Separate Consolidated Net Income of EDS for such fiscal
year and the Available Separate Consolidated Net Income of Hughes for such
fiscal year.
The "Exchange Rate" per share of Class E Common Stock and Class H Common
Stock will equal 120% of the ratio of (i) the average market price per share of
Class E Common Stock or of Class H Common Stock, respectively, on a specified
valuation date to (ii) the average market price per share of $1 2/3 Par Value
Common Stock on such date.
No fractional shares of $1 2/3 Par Value Common Stock will be issued in any
such exchange. In lieu thereof, a holder of shares of Class E Common Stock or
Class H Common Stock, as the case may be, will receive cash equal to the
product of (A) the fraction of a share of $1 2/3 Par Value Common Stock to
which the holder would otherwise have been entitled, multiplied by (B) the
average market price per share of $1 2/3 Par Value Common Stock on such
valuation date.
Liquidation Rights. In the event of the liquidation, dissolution or winding
up of the business of General Motors, whether voluntary or involuntary, after
the holders of Preferred Stock, if any were outstanding, and Preference Stock
receive the full preferential amounts to which they are entitled, holders of
the $1 2/3 Par Value Common Stock, Class E Common Stock and Class H Common
Stock will receive the assets remaining for distribution to the General Motors
stockholders on a per share basis in proportion to the respective per share
liquidation units of such classes. Subject to adjustment as described below,
each share of $1 2/3 Par Value Common Stock, Class E Common Stock and Class H
Common Stock would currently be entitled to liquidation units of approximately
one (1.0), one-eighth (0.125) and one-half (0.50), respectively. Holders of
Class E Common Stock and Class H Common Stock have no direct rights in the
equity or assets of EDS or Hughes, respectively, but rather, together with
holders of $1 2/3 Par Value Common Stock, have certain liquidation rights in
the equity and assets of General Motors (which includes 100% of the stock of
both EDS and Hughes).
Subdivision or Combination. If General Motors subdivides (by stock split or
otherwise) or combines (by reverse stock split or otherwise) the outstanding
shares of the $1 2/3 Par Value Common Stock, the Class E Common Stock or the
Class H Common Stock, the voting and liquidation rights of shares of Class E
Common Stock and Class H Common Stock relative to $1 2/3 Par Value Common Stock
will be appropriately adjusted.
In the event of the issuance of shares of Class E Common Stock or Class H
Common Stock as a dividend on shares of $1 2/3 Par Value Common Stock, the
liquidation rights of the applicable class of Common Stock would be adjusted so
that the relative aggregate liquidation rights of each stockholder would not be
changed as a result of such dividend.
A-11
APPENDIX B
HUGHES FINANCIAL INFORMATION
INDEX PAGE
----- ----
Hughes Unaudited Supplemental Pro Forma Financial Data:
Introduction............................................................. B-2
Condensed Statement of Consolidated Operations........................... B-3
Condensed Consolidated Balance Sheet..................................... B-3
Selected Financial Data.................................................. B-4
Selected Segment Data.................................................... B-5
Hughes Consolidated Financial Statements:
Independent Auditors' Report............................................. B-6
Statement of Consolidated Operations and Available Separate
Consolidated Net Income (Loss).......................................... B-7
Consolidated Balance Sheet............................................... B-8
Statement of Consolidated Cash Flows..................................... B-9
Notes to Consolidated Financial Statements............................... B-10
B-1
HUGHES UNAUDITED SUPPLEMENTAL PRO FORMA FINANCIAL DATA
INTRODUCTION
The Hughes Consolidated Financial Statements (pages B-6 through B-25) reflect
the application of purchase accounting adjustments related to the acquisition
of HAC by GM as described in Note 1 to such Consolidated Financial Statements.
However, as provided in the General Motors Certificate of Incorporation, the
earnings attributable to Class H Common Stock for purposes of determining the
amount available for the payment of dividends on Class H Common Stock
specifically excludes such adjustments. More specifically, amortization of
purchase accounting adjustments associated with GM's purchase of HAC in 1985
was $123.8 million in 1994, 1993, and 1992. Such amounts were charged against
the earnings available for the payment of dividends on $1 2/3 Par Value Common
Stock. Unamortized purchase accounting adjustments associated with GM's
purchase of HAC were $3,005.3 million, $3,129.1 million, and $3,252.9 million
at December 31, 1994, 1993, and 1992, respectively. In order to provide
additional analytical data, the following Hughes unaudited supplemental pro
forma financial data, which excludes the purchase accounting adjustments
related to the acquisition of HAC by GM, are provided. See Note 7 to the Hughes
Consolidated Financial Statements.
B-2
HUGHES UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS EXCEPT
PER SHARE DATA)
Net Sales
Outside Customers............................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and Affiliates................ 4,953.6 4,387.4 3,901.4
Other Income--net.............................. 37.1 67.3 128.1
--------- --------- ---------
Total Revenues................................. 14,099.4 13,517.5 12,297.1
Costs and Expenses (a)......................... 12,431.9 11,990.1 11,126.2
Restructuring Charge........................... -- -- 1,237.0
Operating Profit (Loss) (b).................... 1,630.4 1,460.1 (194.2)
Interest Expense............................... 15.1 33.2 60.6
Income (Loss) Before Income Taxes.............. 1,652.4 1,494.2 (126.7)
Income Taxes (Credit).......................... 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) Before Cumulative Effect of
Accounting Changes............................ 1,079.6 921.6 (49.5)
Cumulative Effect of Accounting Changes........ (30.4) -- (872.1)
--------- --------- ---------
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)........................................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Earnings (Loss) Attributable to Class H Common
Stock on a Per Share Basis
Before Cumulative Effect of Accounting
Changes....................................... $ 2.70 $ 2.30 $ (0.11)
Cumulative Effect of Accounting Changes...... (0.08) -- (2.18)
--------- --------- ---------
Net Earnings (Loss) Attributable to Class H
Common Stock................................ $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
--------
(a) Excludes Interest Expense and Restructuring Charge.
(b) Net Sales less Total Costs and Expenses other than Interest Expense.
HUGHES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF DECEMBER 31,
-------------------
1994 1993
--------- ---------
(DOLLARS IN
MILLIONS)
ASSETS
------
Cash and Cash Equivalents.................................. $ 1,501.8 $ 1,008.7
Other Current Assets....................................... 4,741.8 4,705.6
--------- ---------
Total Current Assets....................................... 6,243.6 5,714.3
Property--Net.............................................. 2,611.8 2,634.4
Telecommunications and Other Equipment--Net................ 1,071.7 767.6
Intangible Assets, Investments, and Other Assets........... 1,918.1 1,871.7
--------- ---------
Total Assets........................................... $11,845.2 $10,988.0
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Total Current Liabilities.................................. $ 3,548.1 $ 3,549.1
Long-Term Debt and Capitalized Leases...................... 353.5 416.8
Postretirement Benefits Other Than Pensions, Other
Liabilities, Deferred Income Taxes, and Deferred Credits.. 2,973.1 2,823.1
Total Stockholder's Equity(a).............................. 4,970.5 4,199.0
--------- ---------
Total Liabilities and Stockholder's Equity............. $11,845.2 $10,988.0
========= =========
--------
(a) General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of
Class H Common Stock have no direct rights in the equity or assets of
Hughes, but rather have rights in the equity and assets of General Motors
(which includes 100% of the stock of Hughes).
B-3
HUGHES UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE
AMOUNTS AND PERCENTAGES)
Operating Profit (Loss) (a).......... $ 1,630.4 $ 1,460.1 $ (194.2)
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting
Changes............................. 1,652.4 1,494.2 (126.7)
Earnings (Loss) Used for Computation
of Available Separate Consolidated
Net Income (Loss)*.................. $ 1,049.2 $ 921.6 $ (921.6)
Average Number of Shares of Class H
Common Stock
Outstanding (Numerator)............. 92.1 88.6 75.3
Class H Dividend Base (Denominator).. 399.9 399.9 399.9
Available Separate Consolidated Net
Income (Loss)*...................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class
H Common Stock on a Per Share
Basis*.............................. 2.62 2.30 (2.29)
Stockholder's Equity (b) (c)......... 4,970.5 4,199.0 3,562.1
Dividends Per Share of Class H Common
Stock............................... 0.80 0.72 0.72
Working Capital...................... 2,695.5 2,165.2 1,692.4
Depreciation and Amortization (d).... 470.2 503.5 487.1
Capital Expenditures (e)............. 746.3 580.0 558.5
Operating Profit (Loss) Margin (f)... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)..... 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*........ 7.5 6.9 (7.6)
Return on Equity (b) (i)*............ 22.9 23.7 (21.9)
Pre-Tax Return on Total Assets (b)
(j)................................. 14.5 13.6 (1.2)
Effective Income Tax Rate............ 34.7 38.3 37.0
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Holders of Class H Common Stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993, and
1992. See Note 7 to the Hughes Financial Statements in this Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, and $101.6 million in 1994,
1993, and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994 and $872.1 million, or $2.18
per share, in 1992.
B-4
HUGHES UNAUDITED PRO FORMA SELECTED SEGMENT DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues......................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues...... 37.0% 32.9% 32.0%
Net Sales........................................ $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)............................. 794.8 624.3 463.2
Operating Profit Margin (b)...................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................... $ 142.2 $ 146.8 $ 121.4
Capital Expenditures............................. 166.4 148.2 263.9
AEROSPACE AND DEFENSE SYSTEMS
Revenues......................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues...... 42.7% 47.9% 47.4%
Net Sales........................................ $6,007.3 $6,442.9 $5,781.8
Restructuring Charge ............................ -- -- 911.8
Operating Profit (Loss) (a)...................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............... 11.0% 10.3% (8.1)%
Depreciation and Amortization (c)................ $ 158.5 $ 201.2 $ 219.1
Capital Expenditures............................. 159.5 131.4 100.3
TELECOMMUNICATIONS AND SPACE
Revenues......................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues...... 18.4% 16.6% 16.1%
Net Sales........................................ $2,633.8 $2,135.8 $1,972.9
Restructuring Charge ............................ -- -- 195.3
Operating Profit (a)............................. 271.0 209.6 50.7
Operating Profit Margin (b)...................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c) ............... $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)......................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $100.9 million for the Aerospace
and Defense Systems segment and $21.0 million for the Telecommunications
and Space segment in 1994, 1993, and 1992.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, and $101.6 million in 1994,
1993, and 1992, respectively.
B-5
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To The Stockholder and Board of Directors of Hughes Electronics Corporation:
We have audited the Consolidated Balance Sheet of Hughes Electronics
Corporation and subsidiaries as of December 31, 1994 and 1993 and the related
Statements of Consolidated Operations and Available Separate Consolidated Net
Income (Loss) and Consolidated Cash Flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hughes Electronics Corporation and
subsidiaries at December 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1, 1994
Hughes Electronics Corporation changed its method of accounting for
postemployment benefits. Also, as discussed in Notes 1 and 5 to the financial
statements, effective January 1, 1992 Hughes Electronics Corporation changed
its revenue recognition policy for certain commercial businesses and its method
of accounting for postretirement benefits other than pensions.
Deloitte & Touche LLP
Los Angeles, California
January 30, 1995
B-6
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
REVENUES
Net sales
Outside customers............................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and affiliates (Note 2)....... 4,953.6 4,387.4 3,901.4
Other income--net.............................. 37.1 67.3 128.1
--------- --------- ---------
TOTAL REVENUES............................. 14,099.4 13,517.5 12,297.1
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales and other operating charges,
exclusive of items
listed below (Note 2)......................... 10,943.4 10,557.5 9,602.9
Selling, general, and administrative expenses.. 1,018.3 929.1 1,036.2
Depreciation and amortization.................. 470.2 503.5 487.1
Amortization of GM purchase accounting
adjustments related to HAC (Note 1)........... 123.8 123.8 123.8
Interest expense--net.......................... 15.1 33.2 60.6
Special provision for restructuring (Note 12).. -- -- 1,237.0
--------- --------- ---------
TOTAL COSTS AND EXPENSES................... 12,570.8 12,147.1 12,547.6
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.............. 1,528.6 1,370.4 (250.5)
Income taxes (credit) (Note 6)................. 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) before cumulative effect of
accounting changes............................ 955.8 797.8 (173.3)
Cumulative effect of accounting changes (Notes
1 and 5)...................................... (30.4) -- (872.1)
--------- --------- ---------
NET INCOME (LOSS).............................. 925.4 797.8 (1,045.4)
Adjustments to exclude the effect of GM
purchase accounting adjustments related to HAC
(Note 7)...................................... 123.8 123.8 123.8
--------- --------- ---------
EARNINGS (LOSS) USED FOR COMPUTATION OF
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(LOSS)........................................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(LOSS) (Note 7)
Average number of shares of General Motors
Class H Common Stock outstanding (in millions)
(Numerator)................................... 92.1 88.6 75.3
Class H dividend base (in millions)
(Denominator)................................. 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)........................................ $ 241.6 $ 204.5 $ (142.3)
========= ========= =========
EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS
CLASS H COMMON STOCK ON A PER SHARE BASIS
(Note 7)
Before cumulative effect of accounting changes. $ 2.70 $ 2.30 $ (0.11)
Cumulative effect of accounting changes (Notes
1 and 5)...................................... (0.08) -- (2.18)
--------- --------- ---------
Net earnings (loss) attributable to General
Motors Class H Common Stock................... $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
B-7
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
--------------------
ASSETS 1994 1993
------ --------- ---------
(DOLLARS IN
MILLIONS EXCEPT PER
SHARE AMOUNT)
CURRENT ASSETS
Cash and cash equivalents (Note 1)....................... $ 1,501.8 $ 1,008.7
Accounts and notes receivable
Trade receivables (less allowances).................... 1,039.5 736.7
General Motors and affiliates (Note 2)................. 153.9 404.1
Contracts in process, less advances and progress payments
of $2,311.2 and $2,739.2................................ 2,265.4 2,376.8
Inventories (less allowances) (Note 1)................... 1,087.9 1,060.4
Prepaid expenses, including deferred income taxes of
$89.0 and $36.7......................................... 195.1 127.6
--------- ---------
TOTAL CURRENT ASSETS................................. 6,243.6 5,714.3
--------- ---------
PROPERTY--NET (Notes 8 and 9)............................ 2,611.8 2,634.4
--------- ---------
TELECOMMUNICATIONS AND OTHER EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF $198.0 AND $150.2........... 1,071.7 767.6
--------- ---------
INTANGIBLE ASSETS, NET OF AMORTIZATION OF $1,276.7 AND
$1,144.6
(Note 1)................................................ 3,271.3 3,374.4
--------- ---------
INVESTMENTS AND OTHER ASSETS, INCLUDING DEFERRED INCOME
TAXES OF $214.0 AND $203.7--PRINCIPALLY AT COST (LESS
ALLOWANCES)............................................. 1,652.1 1,626.4
--------- ---------
TOTAL ASSETS......................................... $14,850.5 $14,117.1
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable
Outside................................................ $ 779.9 $ 717.1
General Motors and affiliates (Note 2)................. 80.5 117.5
Advances on contracts.................................... 645.1 660.6
Notes and loans payable (Note 9)......................... 125.7 77.8
Income taxes payable (Note 6)............................ 31.4 102.1
Accrued liabilities (Note 10)............................ 1,885.5 1,874.0
--------- ---------
TOTAL CURRENT LIABILITIES............................ 3,548.1 3,549.1
--------- ---------
LONG-TERM DEBT AND CAPITALIZED LEASES (Note 9)........... 353.5 416.8
--------- ---------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 5)..... 1,541.4 1,446.3
--------- ---------
OTHER LIABILITIES, DEFERRED INCOME TAXES, AND DEFERRED
CREDITS................................................. 1,431.7 1,376.8
--------- ---------
STOCKHOLDER'S EQUITY (Note 11)
Capital stock (outstanding, 1,000 shares, $0.10 par
value) and additional
paid-in capital......................................... 6,326.5 6,323.1
Net income retained for use in the business.............. 1,743.6 1,138.2
--------- ---------
Subtotal................................................. 8,070.1 7,461.3
Minimum pension liability adjustment..................... (76.1) (120.4)
Accumulated foreign currency translation adjustments..... (18.2) (12.8)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY........................... 7,975.8 7,328.1
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........... $14,850.5 $14,117.1
========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
B-8
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (Loss) before cumulative effect of
accounting changes............................. $ 955.8 $ 797.8 $ (173.3)
Adjustments to reconcile income (loss) before
cumulative effect of accounting changes to net
cash provided by operating activities
Depreciation and amortization................. 470.2 503.5 487.1
Amortization of GM purchase accounting
adjustments related to HAC................... 123.8 123.8 123.8
Special provision for restructuring........... -- -- 1,237.0
Pension expense (credit), net of cash
contributions................................ 20.3 (25.6) (137.7)
Provision for postretirement benefits other
than pensions, net of cash payments.......... 78.4 91.0 78.7
Net (gain) loss on sale of property........... 14.3 36.1 (18.0)
Net gain on sale of investments and
businesses................................... (3.6) (50.3) --
Change in deferred income taxes and other*.... (60.1) 207.1 (350.2)
Change in other operating assets and
liabilities
Accounts receivable......................... (238.1) (153.7) 161.9
Contracts in process*....................... 111.4 70.9 46.6
Inventories*................................ (27.5) 104.6 26.8
Prepaid expenses............................ (15.2) 3.4 (10.0)
Accounts payable............................ 25.8 81.5 63.2
Income taxes*............................... (70.7) 30.1 (54.5)
Accrued and other liabilities*.............. (28.2) (143.5) (49.2)
Other*...................................... 20.2 (183.2) (232.8)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES. 1,376.8 1,493.5 1,199.4
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in companies, net of cash acquired... (7.0) (149.3) (69.9)
Expenditures for property and special tools..... (490.5) (448.9) (456.9)
Increase in telecommunications and other
equipment...................................... (351.9) (230.3) (71.6)
Proceeds from disposal of property.............. 90.6 115.0 108.4
Proceeds from sale of investments and
businesses..................................... 3.6 281.6 --
Proceeds from sale and leaseback of satellite
transponders................................... -- -- 314.8
Decrease (increase) in notes receivable......... 206.9 7.6 (45.2)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES........... (548.3) (424.3) (220.4)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes and loans payable......... (2.1) (189.4) (525.8)
Increase in long-term debt...................... 7.5 84.0 236.0
Decrease in long-term debt...................... (20.8) (369.8) (46.8)
Cash dividends paid to General Motors........... (320.0) (288.0) (288.0)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES........... (335.4) (763.2) (624.6)
-------- -------- --------
Net increase in cash and cash equivalents....... 493.1 306.0 354.4
Cash and cash equivalents at beginning of the
year........................................... 1,008.7 702.7 348.3
-------- -------- --------
Cash and cash equivalents at end of the year.. $1,501.8 $1,008.7 $ 702.7
======== ======== ========
--------
*1994 and 1992 amounts exclude the effects of accounting changes.
Reference should be made to the Notes to Consolidated Financial Statements.
B-9
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Hughes
Electronics Corporation (formerly GM Hughes Electronics Corporation) (Hughes)
and its domestic and foreign subsidiaries that are more than 50% owned,
principally Hughes Aircraft Company (HAC) and Delco Electronics Corporation
(Delco Electronics). Investments in associated companies in which at least 20%
of the voting securities is owned are accounted for under the equity method of
accounting.
Effective December 31, 1985, General Motors Corporation (General Motors or
GM) acquired HAC and its subsidiaries for $2.7 billion in cash and cash
equivalents and 100 million shares of GM Class H common stock having an
estimated value of $2,561.9 million, which carried certain guarantees.
On February 28, 1989, GM and the Howard Hughes Medical Institute (Institute)
reached an agreement to terminate GM's then-existing guarantee obligations with
respect to the Institute's holding of GM Class H common stock. Under terms of
the agreement as amended, the Institute received put options exercisable under
most circumstances at $30 per share on March 1, 1991, 1992, 1993, and 1995 for
20 million, 10 million, 10.5 million, and 15 million shares, respectively. The
Institute exercised these put options at $30 per share on March 1, 1991, March
2, 1992, and March 1, 1993. GM has the option to call the Institute's remaining
15 million shares until February 28, 1995, at a call price of $37.50 per share.
The acquisition of HAC was accounted for as a purchase. The purchase price
exceeded the net book value of HAC by $4,244.7 million, which was assigned as
follows: $500.0 million to patents and related technology, $125.0 million to
the future economic benefits to GM of the HAC Long-Term Incentive Plan (LTIP),
and $3,619.7 million to other intangible assets, including goodwill. The
amounts assigned to patents and related technology are being amortized on a
straight-line basis over 15 years and other intangible assets, including
goodwill, over 40 years. The amount assigned to the future economic benefits of
the LTIP was fully amortized in 1990.
For the purpose of determining earnings per share and amounts available for
dividends on the common stocks of General Motors, the amortization of these
intangible assets is charged against earnings attributable to GM $1 2/3 par
value common stock.
The earnings of Hughes and its subsidiaries since the acquisition of HAC form
the base from which any dividends on the GM Class H common stock are declared.
These earnings include income earned from sales to GM and its affiliates, but
exclude purchase accounting adjustments (see Notes 2 and 7).
REVENUE RECOGNITION
Outside sales are attributable principally to long-term contracts, primarily
recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Under this method, sales are recorded equivalent to costs incurred
plus a portion of the profit expected to be realized, determined based on the
ratio of costs incurred to estimated total costs at completion.
Profits expected to be realized on contracts are based on estimates of total
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts, and adjustments to profits
resulting from such revisions are recorded in the accounting period
B-10
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in which the revisions are made. Estimated losses on contracts are recorded in
the period in which they are identified.
Certain contracts contain cost or performance incentives which provide for
increases in profits for surpassing stated objectives and decreases in profits
for failure to achieve such objectives. Amounts associated with incentives are
included in estimates of total sales values when there is sufficient
information to relate actual performance to the objectives.
Effective January 1, 1992, Hughes changed its revenue recognition policy for
certain commercial long-term contracts from the percentage-of-completion (cost-
to-cost) method to the units-of-delivery method. Hughes believes this method
more appropriately aligns the accounting methods of Hughes' commercial
businesses with other commercial enterprises. The unfavorable effect of this
change was $40.0 million after-tax ($0.10 per share of GM Class H common
stock).
Sales under United States Government contracts were 37.6%, 44.2% and 46.1% of
total sales in 1994, 1993, and 1992, respectively.
CASH FLOWS
For purposes of preparing the Statement of Consolidated Cash Flows, all
highly liquid investments purchased with original maturities of 90 days or less
are considered to be cash equivalents.
Net cash provided by operating activities reflects cash payments for interest
and income taxes as follows:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Interest............................................. $ 40.7 $ 72.5 $ 75.2
Income taxes......................................... $686.2 $245.0 $333.0
With respect to material noncash transactions, as described more fully in
Note 13, in 1992 Hughes purchased 21,508,563 shares of GM Class H common stock
in exchange for $425.0 million of notes payable to GM and cash of $25.0 million
in connection with the acquisition of the missile business of General Dynamics
Corporation (GD).
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Trade receivables are principally related to long-term contracts and
programs. Amounts billed under retainage provisions of contracts are not
significant, and substantially all amounts are collectible within one year.
Contracts in process are stated at costs incurred plus estimated profit, less
amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses, are charged to
costs and expenses when incurred. Contracts in process include amounts relating
to contracts with long production cycles, and $371.7 million of the 1994 amount
is expected to be billed after one year. Contracts in process in 1994 also
include approximately $96.2 million relating to claims, requests for equitable
adjustments and amounts withheld pending negotiation or settlement with
customers. Under certain contracts with the U.S. Government, progress payments
are received based on costs incurred on the respective contracts. Title to the
inventories related to such contracts (included in contracts in process) vests
with the U.S. Government.
B-11
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market principally using the
first-in, first-out (FIFO) or average cost methods.
MAJOR CLASSES OF INVENTORIES 1994 1993
---------------------------- -------- --------
(DOLLARS IN
MILLIONS)
Productive material, work in process, and supplies...... $ 968.0 $ 957.1
Finished product........................................ 119.9 103.3
-------- --------
Total................................................. $1,087.9 $1,060.4
======== ========
PROPERTY AND DEPRECIATION
Property is carried at cost. Depreciation of property is provided for based
on estimated useful lives (3 to 45 years) generally using accelerated methods.
TELECOMMUNICATIONS AND OTHER EQUIPMENT
Telecommunications and other equipment includes satellite transponders and
other equipment subject to operating leases or service agreements. Such
equipment is carried at Hughes' direct and indirect manufacturing cost and is
amortized over the estimated useful lives (7 to 23 years) using the straight-
line method. The net book value of equipment subject to operating leases was
$572.9 million and $523.8 million at December 31, 1994 and 1993, respectively.
INTANGIBLE ASSETS
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are amortized using the
straight-line method over periods not exceeding 40 years.
INCOME TAXES
The provision (credit) for income taxes is based on reported income (loss)
before income taxes. Deferred income tax assets and liabilities reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes, as measured by applying currently enacted tax laws. Provision has
been made for U.S. Federal income taxes to be paid on that portion of the
undistributed earnings of foreign subsidiaries that has not been deemed
permanently reinvested.
Hughes and its domestic subsidiaries join with General Motors in filing a
consolidated U.S. Federal income tax return. The portion of the consolidated
income tax liability recorded by Hughes is generally equivalent to the
liability it would have incurred on a separate return basis.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to costs and expenses
as incurred and amounted to $699.3 million in 1994, $612.1 million in 1993, and
$680.5 million in 1992.
FINANCIAL INSTRUMENTS
Hughes enters into foreign exchange-forward contracts and interest rate swap
agreements in connection with management of its exposure to fluctuations in
foreign exchange rates and interest
B-12
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rates. Foreign exchange-forward contracts are accounted for as hedges to the
extent they are designated as, and are effective as, hedges of firm foreign
currency commitments. The cash flows from interest rate swaps are accounted for
as interest expense, and gains and losses from terminated contracts are
deferred and amortized over the remaining life of the underlying debt. Open
swap positions are reviewed regularly to ensure that they remain effective.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transaction net gains (losses) included in consolidated
operating results amounted to ($4.2) million in 1994, $2.4 million in 1993, and
$11.7 million in 1992.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, Hughes adopted Statement of Financial Accounting
Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits.
The Statement requires accrual of the costs of benefits provided to former or
inactive employees after employment, but before retirement. The unfavorable
cumulative effect of adopting this Standard was $30.4 million, net of income
taxes of $19.2 million, or $0.08 per share of GM Class H common stock. The
charge is primarily related to extended-disability benefits which, under the
new accounting Standard, are accrued on a service-driven basis.
NOTE 2: RELATED-PARTY TRANSACTIONS
SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES
The amounts due from and to GM and affiliates result from sales of products
to and purchases of materials and services from units controlled by GM.
Purchases from GM and affiliates, including computer systems services provided
by Electronic Data Systems Corporation, a wholly-owned subsidiary of GM, and
common administrative expenses allocated by GM, amounted to approximately
$257.1 million, $285.9 million, and $447.0 million in 1994, 1993, and 1992,
respectively.
INCENTIVE PLANS
Certain eligible employees of Hughes participate in various incentive plans
of GM and its subsidiaries.
OTHER
Delco Electronics employees participate in GM's pension and other
postretirement benefit programs.
NOTE 3: INCENTIVE PLAN
Under the Hughes Incentive Plan (the Plan) as approved by the GM Board of
Directors in 1987 and 1992, shares, rights, or options to acquire up to 20
million shares of GM Class H common stock may be granted through May 31, 1997
(extended an additional two years in 1995).
The GM Executive Compensation Committee may grant options and other rights to
acquire shares of GM Class H common stock under the provisions of the Plan. The
option price is equal to 100% of the fair market value of GM Class H common
stock on the date the options were granted. These nonqualified options
generally expire 10 years from the dates of grant and are subject to earlier
termination under certain conditions.
B-13
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in the status of outstanding options were as follows:
SHARES
GM CLASS H COMMON STOCK OPTION PRICES UNDER OPTION
----------------------- ------------- ------------
Outstanding at January 1, 1992................. $17.07-$30.25 5,061,209
Granted........................................ 23.63- 25.38 1,927,860
Exercised...................................... 17.07- 24.35 (136,764)
Terminated..................................... 17.07- 30.25 (335,550)
----------
Outstanding at December 31, 1992............... 17.07- 30.25 6,516,755
Granted........................................ 28.00- 28.56 2,027,260
Exercised...................................... 17.07- 30.25 (1,960,162)
Terminated..................................... 17.07- 30.25 (217,845)
----------
Outstanding at December 31, 1993............... 17.07- 30.25 6,366,008
Granted........................................ 36.75 1,612,640
Exercised...................................... 17.07- 30.25 (712,107)
Terminated..................................... 17.07- 36.75 (202,220)
----------
Outstanding at December 31, 1994............... $17.07-$36.75 7,064,321
==========
Options for 4,739,664 shares of GM Class H common stock were exercisable at
December 31, 1994, and the maximum number of shares for which additional
options and other rights may be granted under the Plan was 5,472,562 shares.
NOTE 4: PENSION PROGRAMS
Hughes' total pension expense (credit) amounted to $54.9 million in 1994,
($8.1) million in 1993, and ($54.0) million in 1992.
Substantially all the employees of Delco Electronics participate in the
defined benefit pension plans of General Motors. Plans covering represented
employees generally provide benefits of negotiated stated amounts for each year
of service as well as significant supplemental benefits for employees who
retire with 30 years of service before normal retirement age. The benefits
provided by the plans covering salaried employees are generally based on years
of service and the employee's salary history. Certain nonqualified pension
plans covering executives are based on targeted wage replacement percentages
and are unfunded. The accumulated plan benefit obligation and plan net assets
for the employees of Delco Electronics are not determinable separately;
however, GM charged Delco Electronics $93.3 million, $69.8 million, and $30.6
million for benefits provided to these employees in 1994, 1993, and 1992,
respectively.
Hughes also maintains contributory and non-contributory defined benefit
retirement plans covering substantially all of its non-automotive employees.
Benefits are based on years of service and compensation earned during a
specified period of time before retirement. Hughes also has an unfunded,
nonqualified pension plan covering certain executives. The net pension credit
of Hughes included the components shown below.
1994 1993 1992
------- ------- -------
(DOLLARS IN MILLIONS)
Benefits earned during the year............... $ 146.7 $ 121.1 $ 99.9
Interest accrued on benefits earned in prior
years........................................ 377.0 369.1 357.9
Actual return on assets....................... (104.7) (953.7) (647.5)
Net amortization and deferral................. (457.4) 385.6 105.1
------- ------- -------
Net retirement plan credit.................. $ (38.4) $ (77.9) $ (84.6)
======= ======= =======
B-14
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs are actuarially determined using the projected unit credit method and
are funded in accordance with U.S. Government cost accounting standards to the
extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for
Pensions, requires the recognition of an additional liability to increase the
amounts recorded up to the unfunded accumulated benefit obligation. The
adjustment required to recognize the minimum liability required by SFAS No. 87
is recorded as an intangible asset to the extent of unrecognized prior service
cost and the remainder, net of applicable deferred income taxes, is recorded as
a reduction of Stockholder's Equity. At December 31, 1994 and 1993, the
additional minimum liability recorded was $152.4 million and $208.1 million,
respectively, of which $76.1 million and $120.4 million, respectively, was
recorded as a reduction of Stockholder's Equity.
Plan assets are invested primarily in listed common stock, cash and short-
term investment funds, U.S. Government securities, and other investments.
The weighted average discount rates used in determining the actuarial present
values of the projected benefit obligation shown in the table below were 8.75%
and 7.5% at December 31, 1994 and 1993, respectively. The rate of increase in
future compensation levels was 5.0% in 1994 and 1993. The expected long-term
rate of return on assets used in determining pension cost was 9.75% for 1994
and 10.5% for 1993.
The following table sets forth the funded status of the Hughes plans and the
amounts included in the Consolidated Balance Sheet at December 31, 1994 and
1993.
1994 1993
------------------ ------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Actuarial present value of benefits
based on service to date and present
pay levels
Vested............................... $3,572.5 $ 195.9 $3,936.3 $ 246.4
Non-vested........................... 337.9 0.9 313.6 3.9
-------- ------- -------- -------
Accumulated benefit obligation......... 3,910.4 196.8 4,249.9 250.3
Additional amounts related to projected
pay increases......................... 438.1 22.4 431.5 8.5
-------- ------- -------- -------
Total projected benefit obligation
based on service to date.............. 4,348.5 219.2 4,681.4 258.8
Plan assets at fair value.............. 5,717.4 -- 6,001.4 --
-------- ------- -------- -------
Plan assets in excess of (less than)
projected benefit obligation.......... 1,368.9 (219.2) 1,320.0 (258.8)
Unamortized net amount resulting from
changes in plan experience and
actuarial assumptions................. (152.4) 150.2 (135.8) 209.2
Unamortized net asset at date of
adoption.............................. (217.3) -- (280.0) --
Unamortized net amount resulting from
changes in plan provisions............ (14.2) 24.6 4.5 7.4
Adjustment for unfunded pension
liabilities........................... -- (152.4) -- (208.1)
-------- ------- -------- -------
Net prepaid pension cost (accrued
liability)............................ $ 985.0 $(196.8) $ 908.7 $(250.3)
======== ======= ======== =======
B-15
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1992, Hughes adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement requires that
the cost of such benefits be recognized in the financial statements during the
period employees provide service to Hughes. Hughes' previous practice was to
recognize the cost of such postretirement benefits when incurred (pay-as-you-
go). The cumulative effect of this accounting change as of January 1, 1992 was
$1,366.6 million, or $832.1 million after-tax ($2.08 per share of GM Class H
common stock). The incremental ongoing effect increased costs and expenses by
$96.8 million, $91.0 million, and $78.7 million in 1994, 1993, and 1992,
respectively.
Hughes has disclosed in the financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, Hughes does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of Hughes (other than
pensions) represent legally enforceable liabilities of Hughes.
Substantially all of the employees of Delco Electronics participate in
various postretirement medical, dental, vision, and life insurance plans of
General Motors. Hughes maintains a program for eligible non-automotive retirees
to participate in health care and life insurance benefits generally until they
reach age 65. Qualified employees who elected to participate in the Hughes
contributory defined benefit pension plans may become eligible for these
benefits if they retire between the ages of 55 and 65.
The total non-pension postretirement benefit cost of Hughes and its
subsidiaries, excluding the cumulative effect of adopting SFAS No. 106 in 1992,
included the components set forth as follows:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Benefits earned during the year....................... $ 50.1 $ 49.2 $ 42.9
Interest accrued on benefits earned in prior years.... 130.3 127.2 116.8
Net amortization...................................... 7.6 -- --
------ ------ ------
Total non-pension postretirement benefit cost....... $188.0 $176.4 $159.7
====== ====== ======
The following table displays the components of Hughes' obligation recognized
for postretirement benefit plans included in the Consolidated Balance Sheet at
December 31, 1994 and 1993:
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Accumulated postretirement benefit obligation
attributable to
Current retirees.................................... $ 816.6 $ 906.8
Fully eligible active plan participants............. 191.9 193.1
Other active plan participants...................... 576.6 844.9
-------- --------
Accumulated postretirement benefit obligation......... 1,585.1 1,944.8
Unrecognized net amount resulting from changes in plan
experience and actuarial assumptions................. 44.7 (392.7)
-------- --------
Net postretirement benefit obligation................. 1,629.8 1,552.1
Less current portion.................................. 88.4 105.8
-------- --------
Net long-term postretirement benefit obligation....... $1,541.4 $1,446.3
======== ========
B-16
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumed weighted average discount rates used in determining the actuarial
present value of the accumulated postretirement benefit obligation were 8.57%
and 6.99% at December 31, 1994 and 1993, respectively. The assumed weighted
average rate of increase in future compensation levels related to pay-related
life insurance benefits was 4.6% at December 31, 1994 and 5.3% at December 31,
1993.
The assumed weighted average health care cost trend rate was 7.39% in 1994,
increasing to 9.70% in 1995, and decreasing linearly each successive year until
it reaches 5.68% in 2006, after which it remains constant. A one percentage
point increase in each year of this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1994 by
approximately $165 million, and increase the service and interest cost
components of the 1994 postretirement benefit expense by approximately $21
million.
NOTE 6: INCOME TAXES
The income tax provision (credit) consists of the following:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Taxes currently payable
U.S. Federal................................... $532.2 $222.0 $319.7
Foreign........................................ 10.3 10.7 4.2
U.S. State and local........................... 100.5 94.3 39.8
------ ------ ------
Total........................................ 643.0 327.0 363.7
------ ------ ------
Deferred tax (assets) liabilities--net
U.S. Federal................................... (62.2) 229.7 (368.0)
Foreign........................................ 1.3 -- 0.1
U.S. State and local........................... (9.3) 15.9 (73.0)
------ ------ ------
Total........................................ (70.2) 245.6 (440.9)
------ ------ ------
Total income tax provision (credit).............. $572.8* $572.6 $(77.2)*
====== ====== ======
--------
*Excluding effect of accounting changes.
The deferred income tax benefit in 1994 includes a $63.0 million credit that
resulted from an adjustment to the beginning of the year valuation allowance
because of a change in circumstances with respect to Hughes' ability to realize
the benefit from a capital loss carryforward.
Income (Loss) before income taxes includes the following components:
1994 1993 1992
-------- -------- -------
(DOLLARS IN MILLIONS)
U.S. income (loss)............................. $1,448.1 $1,286.7 $(225.1)
Foreign income (loss).......................... 80.5 83.7 (25.4)
-------- -------- -------
Total........................................ $1,528.6 $1,370.4 $(250.5)
======== ======== =======
B-17
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The consolidated income tax provision (credit) was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Expected tax (credit) at U.S. statutory income
tax rate....................................... $535.0 $479.5 $(85.2)
U.S. State and local income taxes............... 59.3 70.1 (19.8)
Purchase accounting adjustments................. 43.3 43.3 42.1
Foreign tax rate differential................... (17.7) (6.9) (13.1)
Change in valuation allowance................... (63.0) -- --
Deferred tax impact of U.S. Federal income tax
rate change.................................... -- (10.0) --
Other........................................... 15.9 (3.4) (1.2)
------ ------ ------
Consolidated income tax provision (credit).... $572.8* $572.6 $(77.2)*
====== ====== ======
--------
*Excluding effect of accounting changes.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1994 and 1993 are as follows:
1994 1993
--------------------- ---------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
Postretirement benefits other
than pensions................. $ 695.3 $ -- $ 663.7 $ --
Profits on long-term contracts. 259.3 417.3 229.3 437.0
Leveraged leases............... 86.7 -- 99.9 --
Employee benefit programs...... 121.4 372.9 104.0 353.0
Depreciation................... -- 399.4 -- 403.0
Special provision for
restructuring................. 151.8 -- 255.0 --
Other.......................... 408.0 215.6 445.5 287.6
-------- -------- -------- --------
Subtotal....................... 1,722.5 1,405.2 1,797.4 1,480.6
Valuation allowance............ (16.1) -- (76.4) --
-------- -------- -------- --------
Total deferred taxes........... $1,706.4 $1,405.2 $1,721.0 $1,480.6
======== ======== ======== ========
Provision has been made for U.S. Federal income taxes to be paid on that
portion of the undistributed earnings of foreign subsidiaries that has not been
deemed permanently reinvested. At December 31, 1994 and 1993, undistributed
earnings of foreign subsidiaries amounted to approximately $311.4 million and
$446.3 million, respectively. Repatriation of all accumulated foreign earnings
would have resulted in tax liabilities of $90.3 million and $113.8 million,
respectively, for which Hughes has provided deferred tax liabilities of $66.2
million and $75.0 million, respectively.
At December 31, 1994, Hughes had $36.5 million of foreign operating loss
carryforwards which expire in varying amounts between 1995 and 1999. A
valuation allowance has been provided for all of the foreign operating loss
carryforwards.
B-18
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7:EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A
PER SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
Earnings (Loss) attributable to General Motors Class H common stock on a per
share basis have been determined based on the relative amounts available for
the payment of dividends to holders of the GM Class H common stock. Holders of
GM Class H common stock have no direct rights in the equity or assets of
Hughes, but rather have rights in the equity and assets of GM (which includes
100% of the stock of Hughes).
Dividends on the GM Class H common stock are declared by GM's Board of
Directors out of the Available Separate Consolidated Net Income (Loss) of
Hughes earned since the acquisition of HAC by GM. The Available Separate
Consolidated Net Income (Loss) of Hughes is determined quarterly and is equal
to the separate consolidated net income (loss) of Hughes, excluding the effects
of GM purchase accounting adjustments arising from the acquisition of HAC
(Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss)), multiplied by a fraction, the numerator of which is a number
equal to the weighted average number of shares of GM Class H common stock
outstanding during the period and the denominator of which was 399.9 million
during the fourth quarters of 1994, 1993, and 1992.
The denominator used in determining the Available Separate Consolidated Net
Income (Loss) of Hughes is adjusted as deemed appropriate by the GM Board of
Directors to reflect subdivisions or combinations of the GM Class H common
stock and to reflect certain transfers of capital to or from Hughes. The
Board's discretion to make such adjustments is limited by criteria set forth in
GM's Certificate of Incorporation. In this regard, the GM Board has generally
caused the denominator to decrease as shares are purchased by Hughes, and to
increase as such shares are used, at Hughes' expense, for Hughes employee
benefit plans or acquisitions.
Dividends may be paid on GM Class H common stock only when, as, and if
declared by the GM Board of Directors in its sole discretion. The current
policy of the GM Board with respect to GM Class H common stock is to pay cash
dividends approximately equal to 35% of the Available Separate Consolidated Net
Income of Hughes for the prior year. Notwithstanding the current dividend
policy, the dividends paid on the GM Class H Common Stock during 1994, 1993,
and 1992 exceeded 35% of the Available Separate Consolidated Net Income (Loss)
of Hughes for the preceding year (excluding the effect of the $749.4 million
after-tax special provision for restructuring in 1992).
Consistent with Delaware law, which governs the amount legally available for
the payment of dividends on GM's common stock, the GM Board of Directors has
determined that such amount is materially higher than GM's capital surplus plus
net income retained for use in the business (less accumulated deficit), as
reported in its financial statements.
NOTE 8: PROPERTY--NET
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Land and improvements........................................ $ 196.5 $ 208.4
Buildings and unamortized leasehold improvements............. 1,291.2 1,277.9
Machinery and equipment...................................... 2,623.8 2,902.5
Furniture, fixtures, and office machines..................... 81.9 102.3
Construction in progress..................................... 448.9 310.6
-------- --------
Total........................................................ 4,642.3 4,801.7
Less accumulated depreciation................................ 2,047.5 2,200.7
-------- --------
Net real estate, plants, and equipment....................... 2,594.8 2,601.0
Special tools--less amortization............................. 17.0 33.4
-------- --------
Property--net................................................ $2,611.8 $2,634.4
======== ========
B-19
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
1994 1993
------ ------
(DOLLARS IN
MILLIONS)
Loans payable to banks........................................... $ 17.6 $ 8.6
Current portion of long-term debt................................ 55.4 5.7
Other............................................................ 52.7 63.5
------ ------
Total notes and loans payable.................................... $125.7 $ 77.8
====== ======
Foreign bank debt................................................ $ 59.8 $ 72.2
Term loans
GM............................................................. 143.8 143.8
Other.......................................................... 200.0 200.0
Other debt....................................................... 3.9 4.8
------ ------
Total............................................................ 407.5 420.8
Less current portion............................................. 55.4 5.7
------ ------
Long-term debt................................................... 352.1 415.1
Capitalized leases............................................... 1.4 1.7
------ ------
Total long-term debt and capitalized leases...................... $353.5 $416.8
====== ======
At December 31, 1994, Hughes had unused credit available of $450.0 million
and $650.0 million under short-term lines of credit and an unsecured revolving
credit loan agreement, respectively.
The unsecured revolving credit loan agreement provides for a commitment of
$250.0 million through January 1995, subject to a facility fee of 0.09% per
annum, and a commitment of $400.0 million through January 1998, subject to a
facility fee of 0.125% per annum. Borrowings under the agreement bear interest
at a rate which approximates the London Interbank Offered Rate plus 0.25%. No
amounts were outstanding under the agreement at December 31, 1994.
At December 31, 1994, foreign bank debt includes $59.8 million denominated in
British pounds sterling, bearing interest at rates ranging from 3.5% to 10.3%,
with maturity dates from 1995 to 2005.
The GM term loans bear interest at rates ranging from 5.7% to 6.1% with
maturity dates in 1996 and 1997. The other term loans consist of notes payable
to an insurance company bearing interest at rates ranging from 7.1% to 8.0%,
with maturity dates in 1995 and 1997.
Annual maturities of long-term debt and capitalized leases are $55.9 million
in 1995, $92.0 million in 1996, $213.7 million in 1997, $4.2 million in 1998,
$4.5 million in 1999 and $38.6 million thereafter.
Property with a net book value of $38.3 million at December 31, 1994 is
pledged as collateral under such debt.
NOTE 10: ACCRUED LIABILITIES
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Payrolls and other compensation.............................. $ 540.2 $ 504.4
Provision for losses on contracts............................ 277.0 204.2
Accrual for restructuring.................................... 143.3 222.8
Other........................................................ 925.0 942.6
-------- --------
Total...................................................... $1,885.5 $1,874.0
======== ========
B-20
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11: STOCKHOLDER'S EQUITY
The authorized capital stock of Hughes consists of 1,000 shares of $0.10 par
value common stock. At December 31, 1994 and 1993, 1,000 shares having an
aggregate par value of $100 were issued and outstanding. All of the outstanding
capital stock of Hughes is held by General Motors.
1994 1993 1992
-------- -------- ---------
(DOLLARS IN MILLIONS)
Capital stock and additional paid-in capital
Balance at beginning of the year.............. $6,323.1 $6,314.7 $ 6,365.9
Tax benefit from exercise of GM Class H common
stock options................................ 3.4 8.4 --
GM Class H common stock price guarantee in
connection with the acquisition of General
Dynamics' missile business................... -- -- (51.2)
-------- -------- ---------
Balance at end of the year.................. $6,326.5 $6,323.1 $ 6,314.7
======== ======== =========
Net income retained for use in the business
Balance at beginning of the year.............. $1,138.2 $ 628.4 $ 1,961.8
Net income (loss)............................. 925.4 797.8 (1,045.4)
Cash dividends paid to General Motors......... (320.0) (288.0) (288.0)
-------- -------- ---------
Balance at end of the year.................. $1,743.6 $1,138.2 $ 628.4
======== ======== =========
Minimum pension liability adjustment
Balance at beginning of the year.............. $ (120.4) $ (104.3) $ (101.8)
Change during the year........................ 44.3 (16.1) (2.5)
-------- -------- ---------
Balance at end of the year.................. $ (76.1) $ (120.4) $ (104.3)
======== ======== =========
Accumulated foreign currency translation
adjustments
Balance at beginning of the year.............. $ (12.8) $ (23.8) $ (7.7)
Change during the year........................ (5.4) 11.0 (16.1)
-------- -------- ---------
Balance at end of the year.................. $ (18.2) $ (12.8) $ (23.8)
======== ======== =========
As sole stockholder of Hughes, GM is able to cause Hughes to pay cash
dividends and make advances to or otherwise enter into transactions with GM as
GM deems desirable and appropriate. GM reserves the right to cause Hughes to
pay cash dividends to GM in such amounts as GM determines are desirable under
the then prevailing facts and circumstances. Such amounts may be the same as,
greater than, or less than the cash dividends paid by GM on its Class H common
stock. There is no fixed relationship, on a per share or aggregate basis,
between the cash dividends that may be paid by GM to holders of its Class H
common stock and the cash dividends or other amounts that may be paid by Hughes
to GM.
NOTE 12: SPECIAL PROVISION FOR RESTRUCTURING
The 1992 operating results include a special restructuring charge of $1,237.0
million ($749.4 million after-tax, or $1.87 per share of GM Class H common
stock) for Hughes' non-automotive operations, primarily attributable to
redundant facilities and related employment costs. The special charge
comprehended a reduction of Hughes' worldwide employment, a major facilities
consolidation, and a re-evaluation of certain business lines that no longer met
Hughes' strategic objectives. Restructuring costs of $228.3 million, $527.6
million, and $250.9 million were charged against the reserve during 1994, 1993,
and 1992, respectively. In addition, in 1994 and 1993, the restructuring
reserve was increased by $35.0 million and $78.0 million, respectively,
primarily due to changes in the estimated
B-21
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
loss on disposition of two subsidiaries. The remaining liability of $343.2
million relates primarily to reserves for excess leased facilities and other
site consolidation costs. Approximately $288.2 million of this total will
require future cash outflows. It is expected that these costs will be expended
predominantly over the next three years.
NOTE 13: ACQUISITIONS
In December 1994, Hughes announced that it had reached an agreement with CAE
Inc. of Toronto, Canada to acquire substantially all of the assets of its U.S.
subsidiary, CAE-Link Corporation, for $155 million in cash. CAE-Link is an
established supplier of simulation, training, and technical services, primarily
to the U.S. military and NASA. The transaction is expected to close during the
first quarter of 1995.
In August 1992, Hughes acquired the missile business of GD in exchange for
21,508,563 shares of GM Class H common stock and cash with an aggregate value
of $450.0 million. Hughes had purchased the GM Class H shares from GM in August
1992 principally in exchange for a series of notes. The acquisition was
accounted for as a purchase, and accordingly, the operating results have been
consolidated since the acquisition date. The pro forma effect on 1992 operating
results was not material.
Hughes has acquired several other enterprises with operations that complement
existing technological capabilities at aggregate purchase prices, paid in cash,
of $10.4 million and $9.7 million in 1993 and 1992, respectively. These
acquisitions were accounted for using the purchase method of accounting. The
operating results of the entities acquired, which were not material, were
consolidated with those of Hughes from their respective acquisition dates.
The purchase prices of these acquisitions were allocated to the net assets
acquired, including intangible assets, based upon their estimated fair values
at the dates of acquisition.
NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Hughes is a party to financial instruments with off-balance sheet risk in the
normal course of business to reduce its exposure to fluctuations in interest
and foreign exchange rates. The primary classes of derivatives used by Hughes
are foreign exchange-forward contracts and interest rate swap agreements. These
instruments involve, to varying degrees, elements of credit risk in the event a
counterparty should default and market risk as the instruments are subject to
rate and price fluctuations. Credit risk is managed through the periodic
monitoring and approval of financially sound counterparties. Market risk is
mitigated because the derivatives are used to hedge underlying transactions.
Cash receipts or payments on these contracts normally occur at maturity, or for
interest swap agreements, at periodic contractually defined intervals. Hughes
holds derivatives only for purposes other than trading.
FOREIGN EXCHANGE-FORWARD CONTRACTS
Foreign exchange-forward contracts are legal agreements between two parties
to purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. Hughes uses these agreements
to hedge risk of changes in foreign currency exchange rates associated with
certain firm commitments denominated in foreign currency.
The total notional amount of foreign exchange-forward contracts Hughes held
at December 31, 1994 and 1993, was approximately $144 million and $111 million,
respectively. Hughes' open contracts extend for periods averaging nine months.
B-22
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements are contractual agreements between Hughes and
another party to exchange fixed and floating interest rate payments
periodically over the life of the agreements without the exchange of underlying
principal amounts. These instruments are used by Hughes with the objective of
minimizing interest expense while maintaining the desired level of exposure to
the risk of interest rate fluctuations. There were no outstanding interest rate
swap agreements at December 31, 1994. At December 31, 1993, the total notional
amount of outstanding contracts was approximately $200 million. Interest rate
swap agreements used to hedge an underlying debt obligation are not marked to
market, but are recognized as an adjustment to interest expense over the life
of the underlying debt agreement. Gains and losses on terminated swap contracts
are deferred and recognized as a yield adjustment on the underlying debt; such
unamortized gains totaled approximately $10.8 million and $14.9 million at
December 31, 1994 and 1993, respectively.
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, and SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments, the following
fair value estimates and information about valuation methodologies are
presented. For all financial instruments not described below, fair value
approximates book value.
For notes and loans payable and long-term debt, the estimated fair value
(which approximates book value) was $479.9 million and $506.5 million at
December 31, 1994 and 1993, respectively. Such fair value is based on the
quoted market prices for similar issues or on the current rates offered to
Hughes for debt of similar remaining maturities. The carrying value of debt
with an original term of less than 90 days is assumed to approximate fair
value.
The fair values of derivative financial instruments reflect the estimated
amounts Hughes would receive or pay to terminate the contracts at the reporting
date, which takes into account the current unrealized gains or losses on open
contracts. The fair value of foreign exchange-forward contracts is estimated
based on foreign exchange rate quotes at the reporting date. At December 31,
1994 and 1993, the estimated fair value of open contracts in a loss position
was ($0.1) million and ($0.3) million, respectively, which was approximately
equal to book value.
The fair value of interest rate swap agreements is estimated using pricing
models based upon current interest rates. There were no open interest rate swap
agreements at December 31, 1994. At December 31, 1993, the fair value of open
contracts in a gain position was $12.6 million.
NOTE 16: SEGMENT REPORTING
Hughes operates principally within the field of modern high-technology
electronics for use in Automotive Electronics, Telecommunications and Space,
Defense Electronics, and Commercial Technologies business segments. Radios,
controls for engines and transmissions, monitors and sensors for airbags,
controllers for anti-lock brakes, climate control, dashboard instrumentation,
and other automotive electronic products are included in the Automotive
Electronics segment. The Telecommunications and Space segment includes
satellite construction, ownership and operation, communication services, ground
equipment, and direct-to-home satellite television entertainment services. The
Defense Electronics segment includes missile systems, command and control
systems, electro-optical systems, airborne radar systems, military training and
simulation systems, and guidance and control systems. The Commercial
Technologies segment includes commercial electronics products and services such
as commercial training, air traffic control, aircraft passenger communications
and
B-23
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
entertainment, inertial navigation, information systems, space sensors for
environmental and scientific applications, and entertainment and leisure
products. Intercompany transfers between segments are not material. Information
concerning operations by segment is shown below.
TELECOM-
AUTOMOTIVE MUNICATIONS DEFENSE COMMERCIAL
ELECTRONICS AND SPACE ELECTRONICS TECHNOLOGIES CORPORATE TOTAL
----------- ----------- ----------- ------------ --------- ---------
(DOLLARS IN MILLIONS)
Revenues
1994.................. $5,267.5 $2,528.7 $5,590.7 $ 712.5 -- $14,099.4
1993.................. 4,491.6 2,178.0 6,112.1 735.8 -- 13,517.5
1992.................. 3,985.8 1,927.9 5,547.0 836.4 -- 12,297.1
Operating Profit (Loss)
(1)(2)
1994.................. $ 793.6 $ 266.6 $ 583.6 $ (124.5) $(12.7) $ 1,506.6
1993.................. 626.1 195.9 538.0 (0.4) (23.3) 1,336.3
1992.................. 462.4 33.4 (596.6) (195.1) (22.1) (318.0)
Identifiable Assets at
Year-End (3)
1994.................. $3,466.4 $3,473.2 $6,808.8 $ 970.6 $131.5 $14,850.5
1993.................. 2,840.5 2,797.1 7,385.4 957.7 136.4 14,117.1
1992.................. 2,471.8 2,843.6 7,281.7 1,505.0 107.1 14,209.2
Depreciation and
Amortization (1)
1994.................. $ 143.4 $ 144.4 $ 260.9 $ 45.3 -- $ 594.0
1993.................. 153.2 118.8 298.1 57.2 -- 627.3
1992.................. 124.1 128.8 307.3 50.7 -- 610.9
Capital Expenditures (4)
1994.................. $ 171.9 $ 395.0 $ 152.5 $ 26.9 -- $ 746.3
1993.................. 149.2 264.9 132.9 33.0 -- 580.0
1992.................. 266.1 174.4 99.4 18.6 -- 558.5
--------
(1) 1994 includes $123.8 million ($10.7 million, $102.8 million, and $10.3
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) and 1993 and 1992 include $123.8
million ($10.8 million, $102.7 million, and $10.3 million related to
Telecommunications and Space, Defense Electronics, and Commercial
Technologies, respectively) of purchase accounting adjustments associated
with GM's purchase of HAC.
(2) 1992 includes $1,237.0 million ($195.3 million, $911.8 million, and $129.9
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) for the special provision for
restructuring.
(3) Identifiable assets include the unamortized purchase accounting adjustments
associated with the purchase of HAC as detailed below:
TELECOMMUNICATIONS DEFENSE COMMERCIAL
AND SPACE ELECTRONICS TECHNOLOGIES TOTAL
------------------ ----------- ------------ --------
1994................ $261.0 $2,494.5 $249.8 $3,005.3
1993................ 271.7 2,597.3 260.1 3,129.1
1992................ 282.5 2,700.0 270.4 3,252.9
(4) Telecommunications and Space includes expenditures related to
telecommunications and other equipment amounting to $255.8 million, $131.1
million, and $101.6 million, in 1994, 1993, and 1992, respectively.
B-24
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
A reconciliation of operating profit (loss) shown on the previous page to
Income (Loss) before Income Taxes shown in the Statement of Consolidated
Operations and Available Separate Consolidated Net Income (Loss) follows:
1994 1993 1992
-------- -------- -------
(DOLLARS IN MILLIONS)
Operating Profit (Loss)........................... $1,506.6 $1,336.3 $(318.0)
Other Income--net................................. 37.1 67.3 128.1
Interest Expense.................................. (15.1) (33.2) (60.6)
-------- -------- -------
Income (Loss) before Income Taxes............... $1,528.6 $1,370.4 $(250.5)
======== ======== =======
Export sales from the U.S. were as follows:
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Africa............................................... $ 25.8 $ 28.2 $ 39.5
Asia................................................. 758.2 593.4 424.5
Canada............................................... 876.3 820.7 642.9
Europe 678.6 503.1 524.6
Mexico............................................... 96.9 122.9 199.0
Other Latin America.................................. 90.3 68.3 108.7
Middle East.......................................... 370.1 404.4 274.3
-------- -------- --------
Total.............................................. $2,896.2 $2,541.0 $2,213.5
======== ======== ========
--------
Certain amounts for 1993 have been reclassified to conform with 1994
classifications.
NOTE 17: COMMITMENTS AND CONTINGENT LIABILITIES
In December 1994, Hughes entered into an agreement with Computer Sciences
Corporation (CSC) whereby CSC will provide substantially all of the non-
automotive data processing services required by Hughes. Baseline service
payments to CSC are expected to aggregate approximately $1.5 billion over the
term of the eight-year agreement. The contract is cancelable by Hughes with
substantial early termination penalties.
Minimum future commitments under operating leases having noncancelable lease
terms in excess of one year, primarily for real property and satellite
transponders, aggregating $2,142.4 million, are payable as follows: $233.5
million in 1995, $200.0 million in 1996, $169.5 million in 1997, $157.5 million
in 1998, $158.8 million in 1999, and $1,223.1 million thereafter. Certain of
these leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $306.2 million in 1994, $296.3 million in
1993, and $277.9 million in 1992.
Hughes and its subsidiaries are subject to potential liability under
government regulations and various claims and legal actions which are pending
or may be asserted against them. The aggregate ultimate liability of Hughes and
its subsidiaries under these government regulations, and under these claims and
actions, was not determinable at December 31, 1994. In the opinion of
management of Hughes, such liability is not expected to have a material adverse
effect on Hughes' consolidated operations or financial position.
B-25
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY GENERAL MOTORS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO BUY SUCH SECURITIES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF GENERAL MOTORS SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
General Motors and Hughes................................................. 15
Relationship Between General Motors and Hughes............................ 15
Class H Common Stock...................................................... 17
Financial Review of Hughes and its Business Segments...................... 21
Overview of Hughes Business............................................... 30
Automotive Electronics.................................................... 32
Aerospace and Defense Systems............................................. 38
Telecommunications and Space.............................................. 47
Corporate and Other....................................................... 54
Business of Hughes--General............................................... 55
Management................................................................ 58
Selling Stockholder....................................................... 58
Certain United States Federal Tax Considerations For Non-United States
Holders.................................................................. 59
Underwriting.............................................................. 61
Legal Matters............................................................. 61
Experts................................................................... 62
Appendix A: Description of General Motors Capital Stock................... A-1
Appendix B: Hughes Financial Information.................................. B-1
--------------------------------------------------------------------------------
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15,000,000 SHARES
GENERAL MOTORS CORPORATION
CLASS H COMMON STOCK
----------------
PROSPECTUS
----------------
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO.
INCORPORATED
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--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Following is a list of expenses in connection with this offering. HHMI will
pay all of such expenses. The amounts set forth below, except for the
Securities and Exchange Commission registration fee, are estimated:
Securities and Exchange Commission registration fee............ $ 203,665
Printing and engraving expenses................................ 225,000
Legal fees..................................................... 133,000
Auditors' fees................................................. 185,000
Blue Sky fees and expenses..................................... 20,000
Miscellaneous.................................................. 33,335
---------
Total...................................................... $ 800,000
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, General Motors is
empowered to indemnify its directors and officers in the circumstances therein
provided.
General Motors' Certificate of Incorporation, as amended, provides that no
directors shall be personally liable to General Motors or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to General
Motors or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174, or any successor provision thereto, of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Under Article V of its By-Laws, General Motors shall indemnify and advance
expenses to every director and officer (and to such person's heirs, executors,
administrators or other legal representatives) in the manner and to the full
extent permitted by applicable law as it presently exists, or may hereafter be
amended, against any and all amounts (including judgments, fines, payments in
settlement, attorneys' fees and other expenses) reasonably incurred by or on
behalf of such person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("a proceeding"), in which such director or officer was or is
made or is threatened to be made a party or is otherwise involved by reason of
the fact that such person is or was a director, officer, employee, fiduciary or
member of any other corporation, partnership, joint venture, trust,
organization or other enterprise. General Motors shall not be required to
indemnify a person in connection with a proceeding initiated by such person if
the proceeding was not authorized by the Board of Directors of General Motors.
General Motors shall pay the expenses of directors and officers incurred in
defending any proceeding in advance of its final disposition ("advancement of
expenses"); provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under Article V of the By-Laws or
otherwise. If a claim for indemnification or advancement of expenses by an
officer or director under Article V of the By-Laws is not paid in full within
ninety days after a written claim therefor has been received by General Motors,
the claimant may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action General Motors shall have the burden
of proving that the claimant was not entitled to the requested indemnification
or advancement
II-1
of expenses under applicable law. The rights conferred on any person by Article
V of the By-Laws shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of General Motors'
Certificate of Incorporation or By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
General Motors is insured against liabilities which it may incur by reason of
Article V of its By-Laws. In addition, directors and officers are insured, at
GM's expense, against some liabilities which might arise out of their
employment and not be subject to indemnification under Article V of the By-
Laws.
Pursuant to a resolution adopted by the Board of Directors on December 1,
1975, General Motors to the fullest extent permissible under law will
indemnify, and has purchased insurance on behalf of, directors or officers of
General Motors, or any of them, who incur or are threatened with personal
liability, including expense, under the Employee Retirement Income Security Act
of 1974, as amended, or any amendatory or comparable legislation or regulation
thereunder.
ITEM 16. EXHIBITS.
The following documents are exhibits to the Registration Statement.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1(a)* Proposed form of Underwriting Agreement.
4(a) Restated Certificate of Incorporation of General Motors Corpora-
tion as amended to May 26, 1994, incorporated by reference to
Exhibit 3(i) to the Current Report on Form 8-K of General Motors
dated May 26, 1994, and Amendment to Article Fourth of the Cer-
tificate of Incorporation--Division III--Preference Stock, by
reason of the Certificates of Designations filed with the Secre-
tary of State of the State of Delaware on September 14, 1987 and
the Certificate of Decrease filed with the Secretary of State of
the State of Delaware on September 29, 1987, incorporated by
reference to Exhibit 19 to the Quarterly Report on Form 10-Q of
General Motors for the quarter ended June 30, 1990 in the Form
SE of General Motors dated August 6, 1990; as further amended by
the Certificate of Designations filed with the Secretary of
State of the State of Delaware on June 28, 1991, incorporated by
reference to Exhibit 4(a) to Form S-8 Registration Statement of
General Motors dated November 6, 1991 (Registration No. 33-
43744) in the Form SE of General Motors dated November 1, 1991;
as further amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on December 9,
1991, incorporated by reference to Exhibit 4(a) to Form S-3 Reg-
istration Statement of General Motors dated January 27, 1992
(Registration No. 33-45216) in the Form SE of General Motors
dated January 27, 1992; as further amended by the Certificate of
Designations filed with the Secretary of State of the State of
Delaware on February 14, 1992, incorporated by reference to Ex-
hibit 3(a) to the Annual Report on Form 10-K of General Motors
for the year ended December 31, 1991 in the Form SE of General
Motors dated March 20, 1992; and as further amended by the Cer-
tificate of Designations filed with the Secretary of State of
the State of Delaware on July 15, 1992, incorporated by refer-
ence to Exhibit 3(a)(2) to the Quarterly Report on Form 10-Q of
General Motors for the quarter ended June 30, 1992 in the Form
SE of General Motors dated August 10, 1992 and as further
amended by the Certificate of Designations filed with the Secre-
tary of State of the State of Delaware on December 15, 1992, in-
corporated by reference to Exhibit 4(a) to Form S-3 Registration
Statement of General Motors dated January 25, 1993 (Registration
No. 33-49309) in the Form SE of General Motors dated January 25,
1993.
4(b) By-Laws of General Motors Corporation as amended to December 5,
1994, incorporated by reference to Exhibit 3(ii) to the Current
Report on Form 8-K of General Motors dated December 5, 1994.
II-2
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
5* Opinion of Warren G. Andersen, Esq.
8* Opinion of Anton H. Zidansek, Esq.
23(a)** Consent of Deloitte & Touche LLP, independent auditors.
23(b)** Consent of KPMG Peat Marwick LLP, independent auditors.
23(c) Consent of Counsel (included in Exhibits 5 and 8 above).
99* Class H Stock Sale Agreement by and between HHMI and General Mo-
tors dated February 15, 1995.
--------
* Filed previously.
**Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. For purposes of determining any liability under the Securities Act of
1933 (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rules 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DETROIT, STATE OF MICHIGAN, ON MARCH 29, 1995.
General Motors Corporation
/s/ John F. Smith, Jr.
By: _________________________________
John F. Smith, Jr.
Chief Executive Officer, President
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED ON MARCH 29, 1995 BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
--------- -----
/s/ John G. Smale Chairman of the Board of
____________________________________ Directors
John G. Smale
/s/ John F. Smith, Jr. Chief Executive Officer,
____________________________________ President and Director
John F. Smith, Jr.
/s/ J. Michael Losh Executive Vice President and )
____________________________________ Chief Financial Officer )
J. Michael Losh )
)
/s/ Leon J. Krain Vice President and Group ) (Principal
____________________________________ Executive ) Financial
Leon J. Krain ) Officers)
)
/s/ Heidi Kunz Vice President and Treasurer )
____________________________________ )
Heidi Kunz )
/s/ Wallace W. Creek Comptroller )
____________________________________ )
Wallace W. Creek ) (Principal
) Accounting
/s/ James H. Humphrey Chief Accounting Officer ) Officers)
____________________________________ )
James H. Humphrey )
II-4
SIGNATURE TITLE
--------- -----
/s/ Anne L. Armstrong Director
____________________________________
Anne L. Armstrong
/s/ John H. Bryan Director
____________________________________
John H. Bryan
/s/ Thomas E. Everhart Director
____________________________________
Thomas E. Everhart
/s/ Charles T. Fisher, III Director
____________________________________
Charles T. Fisher, III
/s/ J. Willard Marriott, Jr. Director
____________________________________
J. Willard Marriott, Jr.
/s/ Ann D. McLaughlin Director
____________________________________
Ann D. McLaughlin
/s/ Paul H. O'Neill Director
____________________________________
Paul H. O'Neill
/s/ Edmund T. Pratt, Jr. Director
____________________________________
Edmund T. Pratt, Jr.
/s/ Louis W. Sullivan Director
____________________________________
Louis W. Sullivan
/s/ Dennis Weatherstone Director
____________________________________
Dennis Weatherstone
/s/ Thomas H. Wyman Director
____________________________________
Thomas H. Wyman
II-5
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
1(a)* Proposed form of Underwriting Agreement.
4(a) Restated Certificate of Incorporation of General Motors
Corporation as amended to May 26, 1994, incorporated by
reference to Exhibit 3(i) to the Current Report on Form
8-K of General Motors dated May 26, 1994, and Amendment
to Article Fourth of the Certificate of Incorporation--
Division III--Preference Stock, by reason of the
Certificate of Designations filed with the Secretary of
State of the State of Delaware on September 14, 1987 and
the Certificate of Decrease filed with the Secretary of
State of the State of Delaware on September 29, 1987,
incorporated by reference to Exhibit 19 to the Quarterly
Report on Form 10-Q of General Motors for the quarter
ended June 30, 1990 in the Form SE of General Motors
dated August 6, 1990; as further amended by the
Certificate of Designations filed with the Secretary of
State of the State of Delaware on June 28, 1991,
incorporated by reference to Exhibit 4(a) to Form S-8
Registration Statement of General Motors dated November
6, 1991 (Registration No. 33-43744) in the Form SE of
General Motors dated November 1, 1991; as further amended
by the Certificate of Designations filed with the
Secretary of State of the State of Delaware on December
9, 1991, incorporated by reference to Exhibit 4(a) to
Form S-3 Registration Statement of General Motors dated
January 27, 1992 (Registration No. 33-45216) in the Form
SE of General Motors dated January 27, 1992; as further
amended by the Certificate of Designations filed with the
Secretary of State of the State of Delaware on February
14, 1992, incorporated by reference to Exhibit 3(a) to
the Annual Report on Form 10-K of General Motors for the
year ended December 31, 1991 in the Form SE of General
Motors dated March 20, 1992; and as further amended by
the Certificate of Designations filed with the Secretary
of State of the State of Delaware on July 15, 1992,
incorporated by reference to Exhibit 3(a)(2) to the
Quarterly Report on Form 10-Q of General Motors for the
quarter ended June 30, 1992 in the Form SE of General
Motors dated August 10, 1992 and as further amended by
the Certificate of Designations filed with the Secretary
of State of the State of Delaware on December 15, 1992,
incorporated by reference to Exhibit 4(a) to Form S-3
Registration Statement of General Motors dated January
25, 1993 (Registration No. 33-49309) in the Form SE of
General Motors dated January 25, 1993.
4(b) By-Laws of General Motors Corporation as amended to
December 5, 1994, incorporated by reference to Exhibit
3(ii) to the Current Report on Form 8-K of General Motors
dated December 5, 1994.
5* Opinion of Warren G. Andersen, Esq.
8* Opinion of Anton H. Zidansek, Esq.
23(a)** Consent of Deloitte & Touche LLP, independent auditors.
23(b)** Consent of KPMG Peat Marwick LLP, independent auditors.
23(c) Consent of Counsel (included in Exhibits 5 and 8 above).
99* Class H Stock Sale Agreement by and between HHMI and
General Motors dated February 15, 1995.
--------
* Filed previously.
**Filed herewith.
EX-23.A
2
CONSENT
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
GENERAL MOTORS CORPORATION:
We consent to the use in this Amendment No. 1 to Registration Statement on
Form S-3 (No. 33-58235) of our report dated January 30, 1995 appearing in
Appendix B of the Prospectus, which is part of the Registration Statement, and
to the incorporation by reference of our reports dated January 30, 1995
appearing in the Annual Report of General Motors Corporation on Form 10-K for
the year ended December 31, 1994 and to the reference to us under the heading
"Experts" in the Prospectus.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 29, 1995
EX-23.B
3
CONSENT
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
THE BOARDS OF DIRECTORS
GENERAL MOTORS CORPORATION
ELECTRONIC DATA SYSTEMS CORPORATION:
We hereby consent to the use of our report incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 29, 1995